Gov’t partially awards T-bills

The government made a partial award of the Treasury bills (T-bills) it offered on Monday with mixed rates amid policy comments from the new Bangko Sentral ng Pilipinas (BSP) chief and US data that supported expectations of a hike from the US Federal Reserve.

The Bureau of the Treasury (BTr) raised PHP 14.417 billion via the T-bills it auctioned off on Monday, a tad short of the PHP 15-billion program, even as total bids reached PHP 27.56 billion.

Broken down, the Treasury made a full P5-billion award of the 91-day T-bills as tenders for the tenor reached PHP 11.128 billion. The average rate of the three-month papers went down by 17.7 basis points (bps) to 5.973% from the 6.15% quoted for the tenor last week, with accepted rates ranging from 5.92% to 6.01%.

The government also raised the PHP 5 billion as planned from the 182-day securities as bids reached PHP 8.328 billion. The average rate for the six-month T-bill stood at 6.266%, steady from the previous week, with accepted rates from 6.168% to 6.323%.

Meanwhile, the BTr raised just PHP 4.417 billion via the 364-day debt papers out of the PHP 5 billion on the auction block, even as demand for the tenor reached PHP 8.104 billion. The average rate of the one-year T-bill climbed by 5.3 bps to 6.339% from the 6.286% fetched last week. Accepted yields were from 6.198% to 6.375%.

At the secondary market before Monday’s auction, the 91-, 182- and 364-day T-bills were quoted at 6.1088%, 6.1939%, and 6.2834%, respectively, based on PHP Bloomberg Valuation Reference Rates data provided by the Treasury.

“Results were mixed in today’s Treasury bills auction as the Auction Committee decided to fully award bids for the 91- and 182-day securities while partially awarding the 364-day T-bills. The 91- and 182-day securities fetched average rates of 5.973% and 6.266%, respectively. Meanwhile, the 364-day T-bill was capped at 6.339%,” the BTr said in a statement on Monday.

“The auction was 1.8 times oversubscribed, attracting PHP 27.6 billion in total tenders. With its decision, the committee raised PHP 14.4 billion of the PHP 15-billion total offering,” it added.

T-bill yields were mixed as the new BSP chief said they could consider cutting benchmark rates if inflation returns to the 2-4% target, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Eli M. Remolona said last week that a rate cut could be possible this year if inflation falls below 4% by October.

“We’ll do [the cut] one meeting at a time. But in doing it one meeting at a time, we’ll also look forward to what we might do down the road… We’re not looking at just one policy rate. We’re looking at a path of the policy rate,” he said.

The BSP last month kept borrowing costs unchanged for a second straight meeting. It raised benchmark rates by 425 bps from May 2022 to March 2023, bringing the policy rate to a near 16-year high of 6.25%.

Its next review is on August 17.

Meanwhile, headline inflation in June eased for a fifth straight month to 5.4%  from 6.1% in May 2023 and in June 2022.

For the first six months of the year, inflation averaged 7.2%, still above the BSP’s 5.4% full-year forecast.

“The T-bill rates today reflected the moderate weakness of the US labor market last June as the US unemployment rate slightly ticked up and nonfarm payrolls came in lower than market expectations,” a trader added in an e-mail on Monday.

The US economy added the fewest jobs in 2-1/2 years in June, but persistently strong wage growth pointed to still-tight labor market conditions that most certainly ensure the Federal Reserve will resume raising interest rates later this month, Reuters reported.

The Labor department’s closely watched employment report on Friday also showed 110,000 fewer jobs were created in April and May, indicating that higher borrowing costs were starting to dampen businesses’ appetite to continue boosting headcount. There was also a jump in the number of people working part-time for economic reasons last month, in part because their hours had been reduced due to slack work or business conditions.

Nonfarm payrolls increased by 209,000 jobs last month, the smallest gain since December 2020, the survey of establishments showed. Economists polled by Reuters had forecast payrolls rising 225,000. It was the first time in 15 months that payrolls missed expectations.

Meanwhile, the unemployment rate slipped to 3.6% in June from a seven-month high of 3.7% in May. The unemployment rate has remained in a 3.4%-3.7% range since March 2022.

The US central bank paused its tightening cycle last month after hiking borrowing costs for 10 straight meetings by a total of 500 bps, bringing the fed funds rate to a range between 5% and 5.25%.

Fed Chair Jerome H. Powell earlier said the Fed could hike by 25 bps two more times within the year.

On Tuesday, the BTr will auction off PHP 30 billion in fresh 15-year Treasury bonds (T-bonds).

The BTr wants to raise PHP 180 billion from the domestic market this month, or PHP 60 billion via 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 6.1% of gross domestic product this year. — A.M.C. Sy with Reuters