Yields on Treasury bills climb across the board

The government made a partial award of the Treasury bills (T-bills) it auctioned off on Monday as rates climbed across the board amid growing tightening bets due to the war in the Middle East.

The Bureau of the Treasury (BTr) raised PHP 14.26 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 23.359 billion.

Broken down, the Treasury made a full PHP 5-billion award of the 91-day T-bills, with tenders for the tenor reaching PHP 7.804 billion. The three-month paper was quoted at an average rate of 6.149%, 15.9 basis points (bps) above the 5.99% seen for a partial award last week. Accepted rates ranged from 6.04% to 6.249%.

The government likewise raised PHP 5 billion as planned via the 364-day debt papers as bids reached PHP 10.095 billion. The average rate of the one-year T-bill rose by 9.1 bps to 6.479% from the 6.388% quoted for last week’s offer. Accepted yields were from 6.4% to 6.525%.

On the other hand, the government borrowed only PHP 4.26 billion through the 182-day securities, short of the PHP 5-billion program, despite bids for the paper reaching PHP 5.46 billion. The average rate for the six-month T-bill stood at 6.33%, up by 12.3 bps from the 6.207% seen last week, with accepted yields ranging from 6.245% to 6.399%.

“Treasury bill average auction yields were again mostly higher for the fifth straight week, similar to the weekly rise in the comparable short-term PHP BVAL (Bloomberg Valuation Service) yields,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills went up by 13.93 bps, 1.96 bps, and 15.33 bps week on week to end at 6.0104%, 6.1654%, and 6.4618%, respectively, based on PHP BVAL Reference Rates data published on the Philippine Dealing System’s website.

Before Monday’s auction, the 91-, 182- and 364-day T-bills were quoted at 6.01%, 6.165%, and 6.462% respectively, PHP BVAL Reference Rates data provided by the Treasury showed.

The ongoing conflict between Israel and Palestine and its impact on global oil prices pose upside risks to inflation, which could lead to further tightening by the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve, Mr. Ricafort added.

“The higher T-bill rates reflected growing expectations of a potential BSP rate hike amid domestic price pressures. The massive bids continue to indicate strong investor demand for higher-yielding bills as the domestic yield curve remains flat,” a trader likewise said in an e-mail. 

Speaking at the Economic Club of New York on Thursday, Fed Chair Jerome H. Powell said the US economy’s strength and continued tight labor markets could require tougher borrowing conditions to control inflation, Reuters reported.

The Fed kept its key rate unchanged at the 5.25% to 5.5% range at its meeting last month.

It has hiked rates by a cumulative 525 bps since it began its tightening cycle in March last year.

The Federal Open Market Committee will next meet on Oct. 31 to Nov. 1 to review policy.

Meanwhile, the Philippine central bank is open to raising its policy rate by 25 bps during their meeting next month after inflation picked up for a second month in a row in September, BSP Governor Eli M. Remolona, Jr. said earlier this month.

Mr. Remolona said he “would not rule out” a 25-bp increase at the Monetary Board’s Nov. 16 meeting, adding there is still room for monetary tightening as the economy remains strong.

The Monetary Board has kept the policy rate at a near 16-year high of 6.25% at its last four meetings. It raised borrowing costs by 425 bps from May 2022 to March 2023 to help bring down inflation.

On Tuesday, the BTr will offer PHP 30 billion in reissued 10-year Treasury bonds  (T-bonds) with a remaining life of nine years and 10 months.

The Treasury wants to raise PHP 150 billion from the domestic market this month, or PHP 60 billion via T-bills and PHP 90 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. — M.J.B. Poliarco