Risk-on investor armor at auctions

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Diwa Guinigundo, deputy governor of Bangko Sentral ng Pilipinas, poses for a photograph following a Bloomberg Television interview on the sidelines of the 50th Asian Development Bank (ADB) Annual Meeting in Yokohama, Japan, on Friday, May 5, 2017. Guinigundo, one of the leading candidates to become the next central bank governor in the Philippines, said there is no need to adjust monetary policy as inflation is forecast to stay on target. Photographer: Kiyoshi Ota/Bloomberg via Getty Images

Anticipation of still lower inflation in the coming months has driven the financial community, particularly fund managers, to park their money into longer-dated benchmarks as indicated by the mixed results on Monday’s Treasury bills (T-bills) auction.

When the securities were last sold at auction last year, the BTr rejected all bids for both benchmarks

This compelled the Bureau of the Treasury (BTr) to close the inaugural auction this year by partially awarding the 91-day tenor, which rose a few basis points, while awarding in full both the 182- and the 364-day benchmarks, which posted lower than previous rates.

The rate for the 91-day tenor averaged 5.411 percent, an 8.8 basis point uptick from the previous 5.323 percent.

Only P2.72 billion worth of three-month T-bills were sold and tenders for the tenor fell short of the P6 billion the BTr indicated, reaching only P4.34 billion.

On the longer-dated tenors, the rates for both the 182- and 364-day T-bills stood at 6.424 percent and 6.641 percent, respectively. Market interest in the securities was such that the auction committee at the BTr decided on a full award. The market tendered a total P9.16 billion for the former and P15.84 billion for the latter.

When the securities were last sold at auction last year, the BTr rejected all bids for both benchmarks. At that time, the investors were basically at the sidelines looking to see what the US Fed, still the world’s most influential central bank, would do with its own interest rate structure.

Treasury official awarded full the bids for the longer-dated tenors as rates dropped by 17- and 21.9 basis points for the 182- and 364-day tenors, respectively.

In all, the BTr sold only P16.7 billion of the intended P20 billion on offer although strong interest in the securities show total demand reaching P29.4 billion.

National Treasurer Rosalia de Leon said the mixed outcome of the auctions is a reflection of the mood of the market at present given that both the Bangko Sentral ng Pilipinas (BSP) and the US Fed are thought to keep their respective policy adjustments on hold for moment.

They are listening to the markets and patiently watching also the global economy.

“So far right now everybody is going into the one-year, I mean, the longer-dated T-bills,” De Leon told reporters.

This has reference to the desire of the investing community to take advantage of better returns still offered by the six-month and one-year T-bills although these, too, posted lower-than-previous rates on Monday.

De Leon noted Deputy BSP Governor Diwa Guinigundo’s remarks a while back in which he spoke of inflation steadily improving near term and once again fall within target by the second half this year.

“There’s also some speculation that Fed might also take a pause given the very guarded remark of (Federal Reserve chairman Jerome) Powell. They are listening to the markets and patiently watching also the global economy,” she said.

De Leon said what the market is doing illustrates the risk-on stance the individual players have taken in recent days in which each was willing to take on a bit more risk than usual by taking on comparatively fewer returns on their T-bill exposures for now in hopes that at some point forward the rates would once again rise in their favor.

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