Gov't to raise P140 billion from shorter Treasury papers next month

MANILA, Philippines — The Duterte administration is borrowing P140 billion from domestic investors next month, with new debts to be incurred having shorter payment terms as the government tries to ensure healthy offers to raise pandemic response funding.

Broken down, the government will raise a cumulative P80 billion from issuing Treasury bills due on three, six and 12 months on four Wednesdays of October, the Bureau of the Treasury said in a notice on Tuesday.

T-bill offers will be capped at P20 billion each week, similar with previous month.

The Treasury is also floating the same amount of bonds, at P60 billion, on October 8 and 22, but is planning to offer shorter 3-year papers together with 5-year securities. This month, 5-year and 10-year T-bonds were offered, but only P30 billion of the former were sold.

The total amount to be borrowed will be P20 billion lower from last month.

Explaining the changes, National Treasurer Rosalia de Leon said investors are likely to shy away from longer-dated debt as they prefer to hold into cash due to uncertainties triggered by the pandemic. The government borrows from domestic market to partially plug its budget deficit. 

Even if some may be willing to take the risk on T-bonds maturing for 10 years or more, De Leon said government would have to pay them higher interest, which it is not willing to do. “To push investors towards long tenors, (we) need to pay up more than (secondary market benchmark),” she said in a text message.

Nicholas Antonio Mapa, senior economist at ING Bank in Manila, agreed with De Leon’s assessment. “Ten-year bonds would have fetched a rate that the BTr deemed too high with investors asking for higher yields at last week’s auction,” Mapa said in an e-mail.

It was only last week when the Treasury was forced to reject all bids for 10-year T-bonds after the securities fetched an average rate of 3.33%, which the auction committee considered too expensive.

While the central bank has slashed policy rates to record-lows, which in effect should have bearing in Treasury auctions, Mapa said investors may be looking far ahead when inflation is expected to pick up with economic rebound, therefore potentially eating away returns they would lock in state securities.

“Expectations for faster inflation and likely increased borrowing from the government over the next few years to fund the COVID-19 response may have been the reasons for market players to demand higher yields,” he explained.

Good cash position

That said, Ruben Carlo Asuncion, chief economist at UnionBank of the Philippines, thinks government would continue to have courage rejecting auction bids, thanks to its “ample” cash from large foreign borrowings worth $9.9 billion from March to September.
 
“The BTr can starve the market of supply of T-bonds in particular if markets don't ‘behave’ since the BTr already has much of the  funding for a large Q4 deficit looming because of the fiscal stimulus,” Asuncion said in a text message.

While the central bank this month has started selling its own bonds, providing another investment avenue, Mapa said overall yields are unlikely to rise “given that BSP is only expected to be issuing shorter-dated securities.”

“Perhaps there will be room for yields to rise in the near term as money is put to work and inflation tiptoes higher when the economy is finally on the mend,” he said.

As of July, the latest period on which data is available, Treasury raised P1.23 trillion through weekly auction of Treasury bonds and bills. The government targets to generate P1.7 trillion this year through these weekly offerings.