Gov’t fully awards Treasury bills at higher rates

The government made a full award of the Treasury bills (T-bills) it offered on Monday at higher rates as investors expect the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) to keep benchmark borrowing costs elevated.

The Bureau of the Treasury (BTr) raised PHP 15 billion as planned from the T-bills it offered on Monday as total bids reached PHP 39.831 billion or more than twice the amount on the auction block.

Broken down, the BTr borrowed PHP 5 billion as programmed from the 91-day T-bills as tenders for the tenor reached PHP 10.939 billion. The three-month paper was quoted at an average rate of 5.87%, 9.8 basis points (bps) higher than the 5.772% seen last week. Accepted rates ranged from 5.824% to 5.895%.

The government likewise made a full PHP 5-billion award of the 182-day securities, with bids reaching PHP 13.632 billion. The average rate for the six-month T-bill stood at 5.973%, up by 8.8 bps from the 5.885% fetched last week, with accepted rates at 5.9% to 5.99%.

Lastly, the Treasury raised P5 billion as planned via the 364-day debt papers as demand for the tenor totaled P15.26 billion. The average rate of the one-year debt went up by 6.1 bps to 6.044% from the 5.983% quoted last week. Accepted yields were from 6.025% to 6.064%.

At the secondary market before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.7727%, 5.8969%, and 6.0514%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

T-bill rates rose on Monday amid hawkish Fed and BSP bets, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The higher T-bill yields came amid  market expectations that the Fed may cut rates just once this year, if not at all, due to faster-than-expected inflation data, a trader likewise said by phone.

Recent US economic data on the labor market and inflation have caused market expectations for a rate cut from the Fed to be dialed back yet again, Reuters reported.

Expectations for a cut of at least 25 bps in June have shrunk to 26%, down from 50.8% a week prior, according to CME’s FedWatch Tool. US rate futures have now priced in a 77% chance of the first rate cut taking place in September.

Fed fund futures have also pared back the number of rate cuts of 25-bp cuts this year to fewer than two, or roughly 46 bps, from about three or four a few weeks ago.

The US consumer price index (CPI) rose 0.4% last month after advancing by the same margin in February, the Labor department’s Bureau of Labor Statistics said.

In the 12 months through March, the CPI increased 3.5%, the most since September. The CPI was also boosted by last year’s low reading dropping out of the calculation. It rose 3.2% in February. Economists polled by Reuters had forecast the CPI gaining 0.3% on the month and advancing 3.4% year on year.

Meanwhile, BSP Governor Eli M. Remolona, Jr. last week said they could begin their easing cycle later than initially expected as they have become “more hawkish than before” due to persistent upside risks to inflation stemming from higher food and transport costs.

He said they could cut rates by 25 bps in the third quarter if inflation is within target and economic growth is weak. However, policy easing could start as late as the first quarter of 2025 if inflation risks persist, he said.

The Monetary Board kept the target reverse repurchase rate unchanged at a near 17-year high of 6.5% at its meeting last week, as expected by all 16 analysts in a BusinessWorld poll.

The central bank hiked borrowing costs by 450 bps from May 2022 to October 2023 to help bring down elevated inflation.

Headline inflation picked up to 3.7% year on year in March from 3.4% in February. This was slower than the 7.6% clip in the same month last year and marked the fourth straight month that the CPI was within the central bank’s 2-4% target.

For the first quarter, headline inflation averaged 3.3%, below the BSP’s baseline forecast of 3.8% and risk-adjusted forecast of 4%.

On Tuesday, the BTr will offer PHP 30 billion in reissued 20-year Treasury bonds (T-bonds) with a remaining life of 14 years and nine months.

The Treasury is looking to raise PHP 195 billion from the domestic market this month or PHP 75 billion from T-bills and PHP 120 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 5.6% of gross domestic product this year. — A.M.C. Sy with Reuters