T-bill yields mostly steady amid strong demand

The government made a full award of the Treasury bills (T-bills) it auctioned off on Monday as average rates remained below secondary market levels amid strong demand and before the release of June inflation data.

The Bureau of the Treasury (BTr) raised PHP 20 billion as planned from the T-bills it offered on Monday as total bids reached P43.025 billion, or more than twice the amount placed on the auction block.

Broken down, the BTr borrowed PHP 6.5 billion as programmed from the 91-day T-bills as tenders for the tenor reached PHP 19.06 billion. The three-month paper was quoted at an average rate of 5.686%, 2 basis points (bps) above the 5.666% seen last week. Accepted rates ranged from 5.668% to 5.698%.

The government likewise made a full PHP 6.5-billion award of the 183-day securities, with bids reaching PHP 11.81 billion. The average rate for the six-month T-bill stood at 5.959%, rising by 2.9 bps from the 5.93% fetched last week, with accepted rates at 5.918% to 5.999%.

The six-month tenor was adjusted from the usual 182-day maturity due to a holiday.

Lastly, the Treasury raised the planned PHP 7 billion via the 364-day debt papers as demand for the tenor totaled PHP 12.155 billion. The average rate of the one-year debt increased by 1.9 bps to 6.05% from the 6.031% quoted last week. Accepted yields were from 6.03% to 6.085%.

The BTr fully awarded its T-bill offer as the tenors fetched average yields below prevailing secondary market rates, it said in a statement.

At the secondary market before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.7433%, 6.0035%, and 6.0741%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

T-bill rates were lower than the levels seen at the secondary market as investors awaited the release of June inflation data, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Headline inflation was likely steady in June and settled within the central bank’s 2-4% annual target for a seventh straight month, analysts said.

A BusinessWorld poll of 14 analysts conducted last week yielded a median estimate of 3.9% for the June consumer price index (CPI), within the Bangko Sentral ng Pilipinas’ (BSP) 3.4-4.2% forecast for the month.

If realized, June inflation would match the 3.9% recorded in May. It will also be slower than the 5.4% print in the same month a year ago.

The Philippine Statistics Authority is scheduled to release June inflation data on Friday (July 5).

For the first five months, the CPI averaged 3.5%, faster than the BSP’s 3.3% baseline and 3.1% risk-adjusted forecasts for the year but well within the 2-4% goal for the year.

“The awarded T-bill rates moved lower this week as market participants digested the latest softer reading of the US Federal Reserve’s preferred inflation rate, which bolstered expectations of a September policy rate cut,” a trader added in an e-mail.

US monthly inflation was unchanged in May as a modest increase in the cost of services was offset by the largest drop in goods prices in six months, drawing the Federal Reserve closer to start cutting interest rates later this year, Reuters reported.

The report from the Commerce department on Friday also showed consumer spending rose marginally last month. Underlying prices advanced at the slowest pace in six months, raising optimism that the US central bank could engineer a much-desired “soft landing” for the economy in which inflation cools without triggering a recession and a sharp rise in unemployment.

Traders raised their bets for a Fed rate cut in September.

The flat reading in the PCE price index last month followed an unrevised 0.3% gain in April, the Commerce department’s Bureau of Economic Analysis said. It was the first time in six months that PCE inflation was unchanged.

In the 12 months through May, the PCE price index increased 2.6% after advancing 2.7% in April. Last month’s inflation readings were in line with economists’ expectations.

Inflation is receding after spiking in the first quarter as 525 bps worth of rate hikes from the Fed since 2022 cool domestic demand. Inflation, however, continues to run above the central bank’s 2% target.

Financial markets saw a roughly 68% chance that the Fed’s policy easing would start in September compared with about 64% before the data, though policy makers recently adopted a more hawkish outlook. The US central bank has maintained its benchmark overnight interest rate in the current 5.25%-5.5% range since last July.

On Tuesday, the BTr will offer P30 billion in reissued seven-year Treasury bonds (T-bonds) with a remaining life of four years and 10 months.

The Treasury wants to raise P215 billion from the domestic market this month, or P100 billion from T-bills and P115 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. — AMCS with Reuters