Treasury officials thwarted on Monday attempts by institutional investors to ramp up short-term Treasury bill (T-bill) rates ahead of the anticipated normalization of US interest rates seen as early as the next rate-setting meeting of the US Fed.
While all three T-bill tenors posted increases, the Bureau of the Treasury (BTr) auction committee dashed all notions of an across-the-board rate rise by allowing the one-year T-bill rate a token increase of only 0.3 basis point to 2.763 percent from 2.766 percent.
Allowing the long end of the T-bill spectrum to rise in double-digit fashion just like its short-dated counterparts would have sent a vastly different message to a market already anticipating lending rates in the US, still considered the world’s safest market, to rise to unwarranted levels.
Nevertheless, Treasury officials were surprised on Monday that the previously uncomplicated 364-day T-bills generated interest of more than twice the offered volume of only P4 billion as aggregate bids reached P9.405 billion instead.
“I think the surprise today was really the 364-day T-bill rate because as you may have observed in the past” the tenor had been quite undersubscribed,” Deputy Treasurer Edwin D. Sta. Ana said.
“Now you’re seeing that it is, in fact, the most in demand of the three. I think this has something to do with the perceived normalization of [US] interest rates over a one-year horizon. I think that’s what we are seeing at this stage,” Sta. Ana said.
The Treasury auction committee sold all P6 billion worth of 91-day T-bills on offer on Monday and allowed the rate to move up 10.8 basis points to 2.360 percent, from only 2.252 percent, when the tenor was last sold.
It was obvious that the market, long starved of rates higher than where these are at present, threw a total P8.57 billion worth of offers at the tenor to no avail, forcing the auction committee to reject P2.57 billion.
“I think [today has] a much better turnout compared to past T-bill auctions that we had. You look at the total demand and we have around P25 billion, if I’m not mistaken. We’re fully subscribed on all tenors offered today so the 91- and 364-day tenors each had a full award.
“Of the three, only the 182-day has a slightly muted response from the dealers so we were able to partially award to manage the yield curve at the short end,” Sta. Ana said.
“We think the reason the 182-day behaved like that was in anticipation of the moves by the US Federal Reserve [the Fed] in the second half of the year. [That] is actually starting to show in the numbers because, I think, today it reached about 40 percent in terms of the probability of a hike. And toward the second half of the year we could observe a bit higher probability of a Fed action,” he added.
Total tenders for the T-bills aggregated P23.105 billion, with the BTr offering a total of only P15 billion.
“The yields are relatively, well, a bit higher than previous but marginally low, so you are seeing a 10- to 12-basis point pick up from the past auction if you look at the average rate,” Sta. Ana said.