Gov’t fully awards Treasury bill offer even as yields mostly rise

The government  made a full award of the Treasury bills (T-bills) it offered on Monday on the back of strong demand and even as rates mostly rose following hawkish signals from the US Federal Reserve.

The Bureau of the Treasury (BTr) raised P15 billion as planned from the T-bills it offered on Monday as total bids reached P38.296 billion or more than twice the amount on the auction block.

Broken down, the BTr borrowed P5 billion as programmed from the 91-day T-bills as tenders for the tenor reached P15.25 billion. The three-month paper was quoted at an average rate of 5.719%, 0.7 basis point (bp) higher than the 5.712% seen last week. Accepted rates ranged from 5.698% to 5.725%.

The government likewise made a full P5-billion award of the 182-day securities, with bids reaching P11.16 billion. The average rate for the six-month T-bill stood at 5.886%, up by 2.2 bps from the 5.864% fetched last week, with accepted rates at 5.869% to 5.909%.

Lastly, the Treasury raised the planned P5 billion via the 364-day debt papers as demand for the tenor totaled P11.885 billion. The average rate of the one-year debt went down by 3.6 bps to 6.043% from the 6.007% quoted last week. Accepted yields were from 6% to 6.084%.

At the secondary market before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.7881%, 5.9429%, and 6.0323%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

“The offered T-bill rates today reflected upward shift amid persistent hawkish policy remarks from various Federal Reserve officials and as seconded by the minutes of their latest policy meeting last week,” a trader said in an e-mail on Monday.

The US central bank’s hawkishness resulted in reduced market expectations of a rate cut this year, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Federal Reserve officials at their last policy meeting said they still had faith that price pressures would ease at least slowly in coming months, but doubts emerged about whether the current level of interest rates was high enough to guarantee that outcome and “various” officials said they’d be willing to hike borrowing costs again if inflation surged, Reuters reported.

That meeting was held before data showed the pace of consumer price increases beginning to cool again in April, yet reflected what US central bank officials since then have said is increased uncertainty about the path of inflation and monetary policy.

“Participants… noted that they continued to expect that inflation would return to 2% over the medium term,” according to the minutes of the April 30-May 1 meeting, but “the disinflation would likely take longer than previously thought.”

While the policy response for now would “involve maintaining” the Fed’s benchmark policy rate in the current 5.25%-5.5% range, “various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate,” the minutes said, employing a modifier not included in the usual set of words — like some, many, and most — used in the minutes to give a sense of how many officials voiced a particular opinion.

Fed Chair Jerome H. Powell and other policy makers have since said they feel further rate hikes are unlikely.

But the minutes released on Wednesday excluded specific reference to that notion and to the likelihood of rate cuts this year.

The March 19-20 meeting minutes said that participants had “judged that the policy rate was likely at its peak for this tightening cycle, and almost all participants judged that it would be appropriate to move policy to a less restrictive stance at some point this year if the economy evolved broadly as they expected.”

In place of that broad judgment, the latest minutes showed an emerging debate about just how tight monetary policy is, an important consideration that could bear on how fast inflation returns to the central bank’s 2% target — or whether it gets there at all.

Monday’s offer was the government’s last T-bill auction for the month. The BTr raised P62 billion from T-bills this month, higher than the P60-billion program, as it made full awards at all its offerings and upsized its award for one amid strong demand.

On Tuesday, the BTr will offer P30 billion in reissued three-year Treasury bonds (T-bonds) with a remaining life of two years and seven months.

The Treasury wants to raise P210 billion from the domestic market this month, or P60 billion from T-bills and P150 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.48 trillion or 5.6% of gross domestic product for this year. — A.M.C. Sy with Reuters