Treasury bill rates drop across all tenors with inflation seen easing

THE GOVERNMENT fully awarded the Treasury bills (T-bills) it offered on Monday as average yields dropped across all tenors, with investors betting on slower June headline inflation.

The Bureau of the Treasury (BTr) raised P60 billion as planned from the T-bills it auctioned off as total tenders reached P136.841 billion, over twice as much as the amount on offer. This was also higher than the P122.608 billion in demand seen for the same offer volume last week.

It said it made a full award as all tenors fetched average yields that were lower than those quoted at the previous auction.

Broken down, the Treasury borrowed P20 billion via the 91-day T-bills as demand for the tenor reached P57.909 billion. The three-month paper fetched an average rate of 5.143%, declining by 10.2 basis points (bps) from 5.245% last week. Bids accepted had yields from 5.075% to 5.165%.

For the 182-day debt, the government likewise raised P20 billion as tenders reached P40.337 billion. The average yield on the six-month T-bill was at 5.729%, down by 3.5 bps from 5.764% previously. Tenders awarded carried rates from 5.65% to 5.758%.

Lastly, the BTr also sold P20 billion in 364-day securities as bids for the tenor totaled P38.595 billion. The one-year paper fetched an average rate of 5.964%, edging down by 0.4 bp from 5.968% last week. Accepted bid yields were from 5.9% to 5.98%.

At the secondary market before Monday’s auction, the 91-, 182-, and 364-day T-bills were quoted at 5.124%, 5.531%, and 5.948%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data from the Treasury.

A trader said the BTr fully awarded its T-bill offer as yields dropped across all tenors.

“The decline in the 91-day yield suggests the market is pricing less near-term upside in short-term rates following the Bangko Sentral ng Pilipinas (BSP) June rate hike, also reflecting bets on better consumer price index (CPI) data for June,” the trader said in a text message.

“The 364-day yield remained broadly unchanged, indicating that most of the repricing occurred at the very front end of the curve.”

The trader added that the large volume of T-bills programmed to be issued this quarter at P700 billion could lead to high supply at the short end of the curve.

“[This] could limit the extent of further yield declines in coming auctions.”

The Philippine Statistics Authority will release June inflation data on Tuesday (July 7).

A BusinessWorld poll of 18 analysts yielded a median estimate of 6.6% for the June CPI, slower than the 6.8% in May but faster than 1.4% a year ago.

If realized, this would be within the BSP’s 6%-7% projection for the month and would be the slowest headline print in three months or since the 4.1% in March.

However, this would be the fourth consecutive month that it breached the central bank’s 2%-4% tolerance range.

As of May, the CPI averaged 4.5%.

The Monetary Board on June 18 raised benchmark interest rates by 25 bps for a second straight meeting, bringing the policy rate to 4.75%.

It has now hiked benchmark borrowing costs by a total of 50 bps this year as the global oil price shock due to the Middle East war that erupted in late February caused domestic consumer prices to spike, also affecting inflation expectations.

BSP Governor Eli M. Remolona, Jr. earlier said they have “a lot of room” to tighten further as they now see inflation settling at 6.4% this year and 4.5% next year, slightly faster than previous forecasts of 6.3% and 4.3%, respectively.

On Monday, Mr. Remolona said the economy can handle one more 25-bp increase as they expect growth to rebound this semester on the back of likely faster government spending.

On Tuesday, the government is targeting to raise P30 billion from reissued 20-year Treasury bonds (T-bonds) with a remaining life of five years and 11 days.

The BTr wants to raise P410 billion from the domestic market this month, or P250 billion via T-bills and P160 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.659 trillion or 5.4% of gross domestic product this year. — Justine Irish D. Tabile