Government fully awards PHP15B in Treasury bills

The government made a full award of the Treasury bills (T-bills) it offered on Tuesday at yields below secondary market levels with the Bangko Sentral ng Pilipinas (BSP) widely expected to maintain its benchmark interest rates at its meeting this week.

The Bureau of the Treasury (BTr) raised P15 billion as planned from the T-bills it offered on Tuesday as total bids reached P39.795 billion, or more than twice the amount placed 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 P14.81 billion. The three-month paper was quoted at an average rate of 5.666%, unchanged from the previous week’s award. Accepted rates ranged from 5.648% to 5.675%.

The government likewise made a full P5-billion award of the 183-day securities, with bids reaching P10.71 billion. The average rate for the six-month T-bill stood at 5.93%, inching up by 1.6 basis points (bps) from the 5.914% fetched last week, with accepted rates at 5.912% to 5.95%.

The maturity date for the six-month tenor was adjusted due to a holiday.

Lastly, the Treasury raised the planned P5 billion via the 364-day debt papers as demand for the tenor totaled P14.275 billion. The average rate of the one-year debt slipped by 1.5 bps to 6.031% from the 6.046% quoted last week. Accepted yields were from 6.029% to 6.034%.

The government fully awarded its T-bill offer as the yields fetched for the three tenors were all lower than the prevailing secondary market rates, the Treasury said in a statement.

At the secondary market before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.7278%, 5.9581%, and 6.0775%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

The Treasury made a full award as T-bill rates mostly moved sideways from the previous week’s auction and as the offer fetched decent demand, a trader said by phone.

“The market is awaiting the BSP’s decision at the MB (Monetary Board) meeting this week,” the trader said.

T-bill rates were lower than secondary market yields amid expectations that the BSP will keep its policy settings unchanged at its meeting on Thursday, matching the US Federal Reserve’s latest decision to maintain a “healthy” interest rate differential, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The BSP is widely expected to maintain its policy stance for a sixth straight meeting on Thursday amid persistent risks to the inflation outlook and a weak peso, analysts said.

All 15 analysts in a BusinessWorld poll conducted last week expect the Monetary Board to keep its policy rate at a 17-year high of 6.5% at its meeting this week.

The central bank has raised borrowing costs by a cumulative 450 bps from May 2022 to October 2023 to tame inflation.

Headline inflation accelerated to 3.9% year on year in May from 3.8% in April, but marked the sixth straight month that inflation settled within the BSP’s 2-4% annual target.

For the first five months, the consumer price index averaged 3.5%, matching the central bank’s baseline forecast for the year.

BSP Governor Eli M. Remolona, Jr. previously said the earliest the central bank can begin easing its policy stance is in August, adding they could cut rates by 25-50 bps in the second semester.

Mr. Remolona has also said the BSP does not need to wait for the Fed to begin its own easing cycle.

Meanwhile, the Federal Reserve this month held its target rate steady at the 5.25-5.5% range for a seventh straight meeting, with expectations of the start of rate cuts being pushed to as late as December. Fed officials are also now projecting only one rate cut this year versus previous expectations of three.

Market participants are still expecting about two rate cuts this year, pricing in an over-60% chance of a 25-bp cut in September, according to LSEG’s FedWatch, Reuters reported.

Tuesday’s T-bill offering was the last for the month. The BTr has raised P60 billion as planned from the short-term papers in June as it made full awards at its four auctions.

On Wednesday, the BTr will offer P30 billion in reissued 20-year Treasury bonds with a remaining life of 19 years and 11 months.

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