More short-term papers for auction Government restructures borrowings in Q4

MANILA, Philippines - The government has kept the amount of Treasury bonds and bills it plans to issue in the fourth quarter, but decided to offer short-termed papers as it expects the US Federal Reserve to hike interest rates soon.

The Bureau of the Treasury (BTr) said it expects to issue up to P135 billion worth of T-bonds and T-bills from October to December, unchanged from the third quarter.

Broken down, P60 billion worth of T-bills and P75 billion worth of T-bonds are up for the offer, it said. Bonds and bills are investment outlets used by the government to borrow money from investors.

T-bill issuances were maintained with three-month papers worth P8 billion being up for tenders every two weeks beginning October. Six-month and one-year papers will be put on the auction block at P6 billion each during the same period.

Changes were made to T-bond offerings however. From seven-, 10- and 20-year securities offered on the third quarter, only three- and five-year papers will be available on the final three months. The amount for each bonds were kept at P25 billion.

“From recent auctions, I guess there was a realization from the part of the government that there would be more interest on the shorter-dated tenors,” said Emilio Neri Jr., lead economist at the Bank of the Phiippine Islands.

“There still seems to be a case where the US still holds influence on the benchmark bonds,” he said in a phone interview yesterday. Treasury officials could not be reached for comment.

The US Federal Reserve is still highly expected to hike interest rates this year even after taming market expectations last week by keeping its near-zero interest rates intact. The US Fed has kept its loosened policy since 2008 to help the US economy recover from the global financial crisis.

The anticipation of higher interest rates in the US – the global safe haven  –  has driven investors out of emerging markets such as the Philippines, driving out capital and pulling down currencies and bonds with it.

Still commenting on the Treasury offer schedule, Neri said the BTr chose the “most attractive ones” in terms of tenor since investors would not want to lock in their gains yet, not until the US Fed finally decides to raise rates.

Higher rates in the US would tend to be more attractive to investors.

Even with low inflation, Neri said investors are more likely to be cautious with the US Fed decision in the offing. Low inflation – which hit a record-low of 0.6 percent in August – allows investors to book higher profits from interest rates not eaten up by higher consumer prices.

“This is also the most realistic given market sentiments now,” he explained.

The government borrows from the local and foreign markets to finance its budget deficit programmed to hit P283.7 billion this year. As of July however, the budget gap – the difference between spending and revenues – amounted only to P18.5 billion.