T-bill yields mixed as US-Iran standoff lengthens

THE GOVERNMENT made a partial award of the Treasury bills (T-bills) it offered on Monday at mixed yields as the market stayed risk averse, with the continuing deadlock between the United States and Iran fanning inflation fears and rate hike expectations.

The Bureau of the Treasury (BTr) raised only P32.78 billion via the T-bills it auctioned off, below the P35-billion plan, even as total tenders reached P68.32 billion, higher than the P40.68 billion in demand recorded on May 18.

Broken down, the Treasury borrowed P15 billion as planned via the 90-day T-bills as demand for the tenor reached P30.29 billion. The three-month paper fetched an average rate of 5.142%, increasing by 6.8 basis points (bps) from 5.074% last week. Bids accepted had yields ranging from 5% to 5.225%.

The government also raised the programmed P13 billion via the 181-day debt as tenders reached P31.25 billion. The average rate of the six-month T-bill was at 5.7%, declining by 19.4 bps from 5.894% previously. Tenders awarded carried rates from 5.698% to 5.701%.

Meanwhile, the BTr sold only P4.78 billion in the 363-day securities, below the P7 billion on offer, as demand for the tenor reached just P6.78 billion. The one-year paper fetched an average yield of 6.163%, rising by 12.6 bps from 6.037% last week. Accepted bids had rates from 6% to 6.3%.

At the secondary market before Monday’s auction, the 91-, 182-, and 364-day T-bills were quoted at 5.0563%, 5.4593%, and 5.9534%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury. Maturity dates across all tenors offered by the BTr were adjusted due to a holiday.

The T-bill auction’s result was mixed as the market remained cautious, with the Middle East conflict stoking domestic inflation concerns, a trader said by phone.

“The demand was the same. Rates just varied depending on clients’ needs on the short end.”

“The T-bill results today are pricing in the potential BSP (Bangko Sentral ng Pilipinas) off-cycle policy rate adjustment as early as this Thursday.

The market is anticipating continued elevated inflation in the next coming months,” Sun Life Investment Management and Trust Corp. President Michael Gerard D. Enriquez said in a Viber message.

Philippine headline inflation surged to an over three-year high of 7.2% in April from 4.1% in March and 1.4% in the same month a year ago as the global oil shock continued to feed into domestic prices. This marked the second straight month that the consumer price index was above the central bank’s 2%-4% tolerance band.

For the first four months, inflation averaged 3.9%.

The BSP on April 23 delivered its first rate increase in over two years, raising benchmark borrowing costs by 25 bps to bring the policy rate to 4.5%, in a preemptive move to stem second-round price effects from the war.

BSP Governor Eli M. Remolona, Jr. said last week that they could take a more aggressive policy stance to help curb spiraling prices as the Middle East conflict continues to stoke inflation.

He said that the Monetary Board is considering a second straight rate hike, possibly even before their scheduled June 18 meeting, adding that more decisive action is needed to respond to the “big” and “persistent” supply shock posed by the war so that they would not fall behind the curve.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the recent correction in global crude oil prices and lingering uncertainty over a definitive US-Iran peace deal could have led to the mixed T-bill auction result.

On Tuesday, the government is looking to raise up to P50 billion from a dual-tenor Treasury bond (T-bond) offering, or P20 billion to P30 billion in reissued seven-year bonds with a remaining life of four years and two months, and P10 billion to P20 billion in 10-year notes with a remaining life of nine years and nine months.

The BTr wants to raise P268 billion from the domestic market this month, or P128 billion via T-bills and P140 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.61 trillion or 5.3% of gross domestic product this year. — Aaron Michael C. Sy