Gov’t fully awards Treasury bill offer at slightly higher yields

THE GOVERNMENT made a full award of the Treasury bills (T-bills) it offered on Monday as yields only rose marginally on expectations that inflation slowed further in May.

The Bureau of the Treasury (BTr) raised PHP 15 billion as planned from the T-bills it auctioned off on Monday with total bids reaching PHP 27.653 billion or almost twice the amount on offer.

Broken down, the Treasury borrowed P5 billion as planned via the 91-day T-bills, with tenders for the tenor reaching PHP 6.589 billion. The average rate of the three-month papers went up by 4.4 basis points (bps) to 5.827% from the 5.783% quoted for the tenor last week, with accepted rates ranging from 5.67% to 5.9%.

The government likewise made a full PHP 5-billion award of the 182-day securities as bids for the tenor reached PHP 11.07 billion. The six-month T-bill was quoted at an average rate of 5.891%, up by 1.2 bps from 5.879% the previous week, with accepted rates from 5.74% to 5.95%.

Lastly, the BTr raised the programmed PHP 5 billion from the 364-day debt papers as demand reached PHP 9.994 billion. The average rate of the one-year T-bill rose by 3.2 bps to 5.98% from the 5.948% fetched for the tenor last week. Accepted yields were from 5.81% to 6%.

At the secondary market before Monday’s auction, the 91-, 182- and 364-day T-bills were quoted at 5.7657%, 5.9630%, and 5.9314%, respectively, based on PHP Bloomberg Valuation Reference Rates data provided by the Treasury.

T-bill yields inched higher ahead of the release of May consumer price index (CPI) data, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Headline inflation likely slowed for a fourth straight month in May amid favorable base effects and a decline in prices of energy and some food items, analysts said.

A BusinessWorld poll of 15 analysts last week yielded a median estimate of 6.1% for May inflation, near the lower end of the 5.8-6.6% forecast of the Bangko Sentral ng Pilipinas (BSP) for the month.

If realized, this would be slower than 6.6% in April but quicker than the 5.4% print in the same month a year earlier.

The May CPI could also exceed the BSP’s 2-4% target for 2023 for the 14^th consecutive month.

In the first four months, headline inflation averaged 7.9%, well above the BSP’s forecast of 5.5% for this year.

The Philippine Statistics Authority will release inflation data on June 6.

Mr. Ricafort added that the higher global crude oil prices recently also contributed to the slight increase in T-bill rates.

Oil prices were up $1 a barrel on Monday after top global exporter Saudi Arabia pledged to cut production by another 1 million barrels per day from July, counteracting the macroeconomic headwinds that have depressed markets, Reuters reported.

Brent crude futures were at USD 77.21 a barrel, up $1.08 or 1.4%, at 0515 GMT after earlier hitting a session high of USD 78.73 a barrel.

US West Texas Intermediate crude climbed by $1.07 or 1.5% to USD 72.81 a barrel after touching an intraday high of USD 75.06 a barrel.

Rates also rose amid decreased demand from the previous auction, which was likely due to expectations that the US Federal Reserve would pause its rate hike cycle at its June 13-14 review, which could be matched by the BSP in its own meeting on June 22, Mr. Ricafort said.

The US central bank raised borrowing costs by 25 bps at its May 2-3 meeting, bringing the Fed funds rate to 5% to 5.25%.

The Fed has hiked borrowing costs by 500 bps since March 2022.

Meanwhile, the BSP on May 18 paused its tightening cycle, keeping its policy rate unchanged at 6.25% for the first time after nine meetings.

Since it began its aggressive monetary tightening cycle in May 2022, the central bank had raised borrowing costs by 425 bps.

T-bill yields rose “after the release of stronger than expected US nonfarm payrolls report last Friday,” a trader said in an e-mail.

Data released on Friday showed payrolls in the public and private sectors increased by 339,000 in May, Reuters reported.

On Tuesday, the BTr will auction off PHP 25 billion in reissued 10-year Treasury bonds (T-bonds) with a remaining life of four years and nine months.

The Treasury wants to raise PHP 185 billion from the domestic market this month, or PHP 60 billion via T-bills and PHP 125 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 6.1% of gross domestic product this year. — A.M.C. Sy with Reuters