Gov’t partially awards T-bill offer as yields climb across the board

The government made a partial award of the Treasury bills (T-bills) it offered on Monday as yields rose across the board following the US Federal Reserve’s hawkish pause.

The Bureau of the Treasury (BTr) raised just PHP 8.8 billion via the T-bills it auctioned off on Monday versus the PHP 15-billion program, even as total bids reached PHP 18.605 billion.

Broken down, the Treasury borrowed just PHP 3.258 billion via the 91-day T-bills, below the PHP 5-billion plan, despite tenders for the tenor reaching PHP 5.568 billion. The average rate of the three-month papers went up by 10.7 basis points (bps) to 6.029% from the 5.922% quoted for the tenor last week, with accepted rates ranging from 5.898% to 6.074%.

The government likewise made a partial PHP 2.901-billion award of the 182-day securities versus the PHP 5-billion program, even as bids for the tenor reached PHP 6.536 billion. The six-month T-bill was quoted at an average rate of 6.081%, up by 10.3 bps from 5.978% the previous week, with accepted rates from 5.925% to 6.123%.

Lastly, the BTr raised only PHP 2.641 billion from the 364-day debt papers out of the PHP 5 billion on the auction block, even as demand reached PHP 6.501 billion. The average rate of the one-year T-bill rose by 10.4 bps to 6.166% from the 6.062% fetched last week. Accepted yields were from 6% to 6.2%.

At the secondary market before Monday’s auction, the 91-, 182- and 364-day T-bills were quoted at 5.8941%, 6.0297%, and 6.0455%, respectively, based on PHP Bloomberg Valuation Reference Rates data provided by the Treasury.

The government partially awarded its T-bill offer as yields rose on expectations of more rate hikes from the Fed, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The Fed left interest rates unchanged last week but signaled in new projections that borrowing costs may still need to rise by as much as half of a percentage point by the end of this year, as the US central bank reacted to a stronger-than-expected economy and a slower decline in inflation, Reuters reported.

In a press conference at the end of the central bank’s latest policy meeting, Fed Chair Jerome H. Powell described US growth and the job market as holding up better than expected under the weight of the aggressive monetary policy tightening of the past year — likely lengthening the Fed’s fight to lower inflation but also letting it proceed with less economic damage.

The pause was out of caution, Mr. Powell said, to allow the Fed to gather more information before determining if rates do need to rise again, with the pace of its moves now less important than finding a proper endpoint that slows price increases while minimizing any rise in unemployment.

A number of Fed officials are speaking this week, with Mr. Powell set to deliver congressional testimonies on Wednesday and Thursday.

Some officials have already sounded hawkish, and with the dot plot indicating two more hikes, markets are pricing in a 70% probability of the Fed hiking rates by a quarter point in July before holding steady for the remainder of the year.

Last week’s pause was the first time the Fed left rates untouched after hiking for 10 straight meetings by a cumulative 500 bps since March 2022 to a range between 5% and 5.25%.

Mr. Ricafort added that hints of a policy adjustment by the Bangko Sentral ng Pilipinas (BSP) next year also contributed to the increase in T-bill yields, as this would mean the key rate would stay at its 16-year high of 6.25% for the rest of the year.

The Monetary Board raised benchmark interest rates by 425 bps from May 2022 to March 2023 before pausing at its May 18 review. It will meet to discuss policy on Thursday, with investors expecting it to continue to keep rates unchanged.

BSP Governor Felipe M. Medalla earlier said the Monetary Board may keep policy rates unchanged until the third quarter.

“Yields fetched were higher today after Fed official Waller noted that the US regional bank failures did not warrant any change in Fed’s monetary tightening,” a trader added in an e-mail on Monday.

Federal Reserve Governor Christopher Waller last week said changes in US credit conditions since the failure of Silicon Valley Bank in early March were “in line” with financial tightening that was already underway due to Federal Reserve interest rate increases — comments that downplayed the idea a worse-than-anticipated contraction in credit might make further Fed rate increases less necessary, Reuters reported.

On Tuesday, the BTr will auction off PHP 25 billion in reissued seven-year Treasury bonds (T-bonds) with a remaining life of five years and 11 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. — AMCS with Reuters