After BSP rate hike, domestic creditors seek higher Treasury yields

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After BSP rate hike, domestic creditors seek higher Treasury yields

Photo courtesy of Bangko Sentral ng Pilipinas Facebook page

MANILA, Philippines — Following the Bangko Sentral ng Pilipinas (BSP) decision to raise policy interest rates by 25 basis points (bps), domestic creditors have been seeking higher yields for short-term borrowing of the Treasury Office (BTr).

As such, the BTR only raised 8.5 billion pesos on its 15 billion peso offering of short-term treasury bills, as it rejected all 364-day IOUs.

The average rate of 5 billion pesos in the benchmark 91-day Treasury bill rose to 1.675% from 1.531% two weeks ago. The BTr rejected offers for the three-month securities last week, otherwise the rate would have risen to 1.759% in the event of a full allocation.

The BTr has capped the bid rates offered by Government Securities Eligible Brokers (GSED) for 182-day Treasury bills at 1.892%, thus granting only 3.5 billion pesos out of the 5 billion pesos that he wanted to borrow. Ahead of Monday’s auction, the BTr totally rejected GSED’s offers to lend via a six-month debt security for two consecutive weeks. Three weeks ago, the average rate recovered by the 182 days was 1.635%.

As for 364-day Treasury bills, the BTr refused to borrow for the third consecutive week. If BTr had raised 5 billion pesos, as planned, from one-year IOUs, the average annual rate would have reached 2.93%, or a maximum of 3.925% and a minimum of 2.1%. In the first week of May, the 364-day securities were partially allocated at 1.933%.

National Treasurer Rosalia de Leon said the last time 364-day Treasury bill primary rates exceeded 3% per annum was in April 2020, when it averaged 3.371% .

De Leon said “the market was defensive with high inflation and an unwinding of accommodative monetary policies with rate hikes and reduced purchases of government securities” here and abroad.

For the first time since November 2018, the BSP Monetary Board last Thursday raised the reverse overnight repurchase rate (RRP) or policy rate – at which the central bank lends to banks – to 2.25% from the level previously maintained record of 2%. amid the protracted COVID-19 pandemic to support economic rebound.

In April, headline inflation hit a 40-month high of 4.9% yoy, above the BSP’s target range of 2-4% manageable price increases conducive to economic growth, not thanks expensive food and oil products.

Tenders at Monday’s treasury bond auction were nevertheless 2.4 times larger than the borrowing plan, with domestic creditors offering to lend a total of 36.5 billion pesos.

Last Friday, the yield on debt securities issued by the BSP jumped to 2.3183%.

The BSP raised 140 billion pesos from 28-day IOUs, with banks offering to lend up to 172.9 billion pesos, 1.24 times more than the offer. “The auction has received good demand from eligible participants,” BSP Deputy Governor Francisco Dakila said in a statement late Friday. The BSP was also able to borrow a larger amount than the previous week’s 130 billion pesos.

However, the accepted yield for the one-month BSP bill rose to a range of 2.0875-2.495% from 1.9825-2.3% previously. Thus, the debt instrument maturing on June 21 generated an average yield 14.362 basis points (bp) higher than the 2.1747% of the previous auction.

“The results of the 28-day bill auction partly reflect the 25 basis point hike in the BSP policy rate that became effective [Friday]“, said Dakila.

“Nevertheless, liquidity in the financial system remained abundant,” Dakila added, citing the oversubscribed supply.

“Going forward, the BSP’s monetary operations will continue to be guided by its assessment of the latest liquidity conditions and market developments,” according to Dakila.

TSB

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