Treasury bill rates fall across the board when inflation appears to be slowing

GOVERNMENT fully awarded Treasury bills (T-bills) issued on Monday as average yields fell across all tenors, with investors betting on slower June inflation.

The Bureau of the Treasury (BTr) collected P60 billion as planned from auctioned bonds as the total tenders reached P136.841 billion, which is twice the amount offered. This was also higher than the P122.608 billion in demand seen with the same supply volume last week.

It said it made the full award as all tenants received an average yield lower than that quoted in the previous auction.

Once discounted, the Treasury borrowed P20 billion in T-day-91 loans as the tenor demand reached P57.909 billion. The three-month paper fetched an average rate of 5.143%, down 10.2 basis points (bps) from 5.245% last week. Bids received ranged in yield from 5.075% to 5.165%.

In the 182-day debt, the government also raised P20 billion as tenders reached P40.337 billion. The average yield on the six-month T-bill was 5.729%, down 3.5 bps from 5.764% previously. Tenders are offered with rates ranging from 5.65% to 5.758%.

Finally, BTr also sold P20 billion in 364-day securities as tenor bids reached P38.595 billion. The one-year note fetched an average yield of 5.964%, down 0.4 bp from 5.968% last week. Yields on accepted bids ranged from 5.9% to 5.98%.

In the secondary market before Monday’s auction, T-91-, 182-, and 364-day bills were quoted at 5.124%, 5.531%, and 5.948%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data from the Treasury.

The trader said that BTr has given its T-bill in full as the yield has decreased in all tenors.

“The drop in the 91-day yield indicates that the market is overpriced in short-term levels following the June rate hike by the Bangko Sentral ng Pilipinas (BSP), which also indicates betting on better consumer price index (CPI) data in June,” the trader said in a text message.

“The 364-day yield remained flat, indicating that most of the pricing is happening at the lower end of the curve.”

The trader added that the large volume of T-bills scheduled to be issued this quarter at P700 billion could lead to higher supply at the short end of the curve.

“[This] it can reduce the rate of yield decline in future auctions.”

The Philippine Statistics Authority will release inflation data for June on Tuesday (July 7).

A BusinessWorld a survey of 18 analysts showed an average estimate of 6.6% CPI for June, slower than 6.8% in May but faster than 1.4% last year.

If possible, this would be within the BSP’s forecast of 6%-7% for the month and would be the slowest headline in three months or since 4.1% in March.

However, this will be the fourth month in a row that it has breached the central bank’s 2%-4% tolerance.

As of May, the CPI averaged 4.5%.

The Monetary Board on June 18 raised benchmark interest rates by 25 bps for the second consecutive meeting, bringing the policy rate to 4.75%.

We have now raised borrowing costs by around 50 bps this year as the global oil price shock from the Middle East war that broke out in late February pushed up domestic consumer prices, which in turn affected inflation expectations.

BSP Governor Eli M. Remolona, ​​Jr. previously said they have “huge room” for further tightening as they now see inflation falling to 6.4% this year and 4.5% next year, slightly faster than previous forecasts of 6.3% and 4.3%, respectively.

On Monday, Mr. Remolona said the economy could face a single 25-bp hike as they expect growth to pick up again this semester after government spending is likely to accelerate.

On Tuesday, the government aims to raise P30 billion in 20-year Treasury bonds (T-bonds) with a maturity of five years and 11 days.

BTr wants to raise P410 billion in the domestic market this month, or P250 billion in T-bills and P160 billion in T-bonds.

The government is borrowing from local and foreign sources to help finance its budget deficit, which stands at P1.659 trillion or 5.4% of gross domestic product this year. – Justine Irish D. Tabile