Treasury bills fetch mixed yields with Iran war, inflation in focus

THE GOVERNMENT made a full award of the Treasury bills (T-bills) it offered on Monday with mixed yields as the auction was met with strong demand, even as markets awaited more details on the ceasefire deal between the United States and Iran and the release of May Philippine inflation data.

The Bureau of the Treasury (BTr) raised P40 billion as planned via the T-bills it auctioned off as total tenders reached P70.505 billion, higher than the P68.32 billion in demand recorded on May 25.

Broken down, the Treasury borrowed P20 billion as programmed via the 91-day T-bills as demand for the tenor reached P36.105 billion. The three-month paper fetched an average rate of 5.143%, inching up by 0.1 basis point (bp) from 5.142% last week. Bids accepted had yields ranging from 5% to 5.2%.

The government also raised the planned P13 billion via the 182-day debt as tenders reached P22.83 billion. The average rate of the six-month T-bill was at 5.624%, declining by 7.6 bps from 5.7% previously. Tenders awarded carried rates from 5.49% to 5.749%.

Lastly, the BTr sold its targeted P7 billion in 364-day securities as demand for the tenor totaled P11.57 billion. The one-year paper fetched an average yield of 6.269%, rising by 10.6 bps from 6.163% last week. Accepted bids had rates from 6.05% to 6.325%.

At the secondary market before Monday’s auction, the 91-, 182-, and 364-day T-bills were quoted at 4.9893%, 5.4041%, and 6.1067%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data from the Treasury.

“All the T-bills were fully awarded, following the trend of rising demand across the past few weeks. Market players’ optimistic sentiment from last week likely influenced the higher volume of awards today,” a trader said in a text message.

T-bill rates still ended mostly higher amid mixed signals on the ceasefire deal between the US and Iran, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The US said it struck Iranian military sites at the weekend and Iran’s Revolutionary Guards said on Monday it had targeted a US base in response, the latest exchange of attacks amid negotiations to end the three-month-old war, Reuters reported.

The US and Iran have sporadically exchanged strikes since their ceasefire took effect in early April as diplomacy aimed at a more durable agreement drags on. A similar exchange occurred last Thursday and was described in near-identical terms by both sides.

Meanwhile, Mr. Ricafort added that expectations of faster May inflation likely pushed yields up as this could lead to further tightening by the Bangko Sentral ng Pilipinas (BSP).

May consumer price index data will be released on Friday (June 5). A BusinessWorld poll of 16 economists yielded a median estimate of 7.9% for the May headline print, up from 7.2% in April and 1.3% in the same month last year.

If realized, this would be the quickest pace since the 8.6% in February 2023 and would match the upper end of the BSP’s 7.1%-7.9% forecast for the month  May would also be the third month in a row that inflation was above the central bank’s 2%-4% target for the year.

BSP Governor Eli M. Remolona, Jr. has said that the central bank is considering a more aggressive stance and could possibly hike rates again, even before their June 18 policy meeting, to help curb spiraling prices as the Middle East conflict continues to stoke inflation.

On April 23, the Monetary Board delivered its first rate hike in over two years, raising benchmark borrowing costs by 25 bps to bring the policy rate to 4.5%.

On Tuesday, the government wants to borrow P30 billion from reissued 20-year Treasury bonds (T-bonds) with a remaining life of five years and one month.

The Treasury is looking 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 with Reuters