Ukraine War Fallout: PH Creditors Seek Higher Yields for Government Borrowings

Treasury Office

The Ayuntamiento de Manila which houses the Treasury Office (Taken from the office’s Facebook account)

MANILA, Philippines — The Bureau of Treasury (BTr) on Monday (February 28th) rejected all treasury bill offers as rates soared across the board amid uncertainties caused by a combination of the Ukraine-Russia war, rising inflation domestic higher, the higher the next interest rate hike from the US Federal Reserve.

Monday’s treasury bill auction was the first domestic borrowing for March, as the allotted amount would have settled on Wednesday, March 2.

However, the Treasury declined the total 18.5 billion peso tenders over the three tenors, despite oversubscribing 1.2 times the total offer of 15 billion pesos.

“91, 182 and 364 day Treasury bills reached averages of 1.49%, 1.736% and 1.865%, respectively, higher than the previous auction as well as secondary market rates,” BTr said. in a press release.

Last week, the benchmark 91-day debt stock hit an average rate of 0.899%; the 182 days, 1.157%; and the 364 days, an annual return of 1.568%.

Government Securities Eligible Dealers’ Offer (GSED) rates soared to 2.5% for three-month IOUs; 2.75% for six months; and 2.2% for one year, if fully awarded at 5 billion pesos each. In contrast, the maximum bids for Treasuries last week were only 0.94%, 1.2% and 1.597%.

Lowest submission rates by duration also increased to 0.875% for 91 days (from 0.8% last week), 1.125% for 182 days (from 1.089%) and 1.675% for 364 days (from 1.499%). .

National Treasurer Rosalia de Leon declined to comment on the rejected Treasury bill bids because she was not there during the BTr auction. But when Treasuries rose broadly last week, De Leon pointed to nervousness over then-escalating tensions between Ukraine and Russia, coupled with higher annual inflation forecasts from Bangko Sentral ng Pilipinas ( BSP) for 2022.

Tensions on the Ukrainian-Russian border had since erupted into a full-blown war. Debt watchdog Moody’s Investors Service said last week that among the side effects of the Ukraine-Russia war in Asia-Pacific was the disruption of financial markets, including the debt market. Rising yields sought by local creditors will make it more expensive for the government to borrow to finance public spending.

The majority of economists polled by the Inquirer last week also expected headline inflation to be higher in February than January’s 14-month low of 3%.

“Inflation likely returned to 3.2% in February … The useful base effect on food is easing and near-term oil pressures are increasing,” said Miguel Chanco, senior economist at Pantheon Macroeconomics for the Monday. Asia, in a report.

In a separate report, think tank Moody’s Analytics sees the Ukraine-Russia conflict spilling over into global food prices.

“Interestingly, Asia-Pacific does not directly import large amounts of food from Russia. The only exception is the Philippines, where wheat is the second largest import from Russia,” said Tim Uy, Moody’s Analytics chief Asia-Pacific economist and Steven Cochrane managing partner.

It didn’t help that the US Fed was planning to step up its rate hikes – markets were expecting up to 50 basis points at its March 16 meeting.

But even recently, rising yields haven’t stopped the BTr from planning to borrow more in March, with a total of 250 billion pesos of treasury bills and bonds on offer at its weekly auctions.

BTr’s domestic borrowing program in March was larger than the 200 billion pesos in January and February each, but March will have five weeks to offer government securities, unlike the four weeks in previous months. In terms of weekly volume, the BTr held 15 billion pesos in treasury bills in Monday’s auction and 35 billion pesos in treasury bills on Tuesday.

BTr’s weekly treasury bill offerings will remain at 5 billion pesos each in benchmark short-term debt securities at 91, 182 and 364 days. It will auction three-year bonds on March 1; seven years on March 8 and 22; four years on March 15; and 10 years on March 29.

Last week, De Leon said the March auction schedule was calibrated with the continued supply of five-year retail Treasury bonds (RTBs), as well as market appetite given the projected higher BSP inflation for 2022, impending Fed hikes, as well as the war between Ukraine and Russia. . The RTB offer will end on Monday (February 28).

The government had planned to borrow 2.2 trillion pesos this year, three-quarters of which will be raised locally through the issuance of treasury bills and bonds.

“By maintaining a bias towards domestic funding sources, we not only protect the government from exchange rate risks, but more importantly, during this period, we can take advantage of BSP support to maintain an accommodative monetary stance,” De said. Leon at the Launch of the RTB offer.


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