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Gov’t makes full award of T-bills at higher rates on inflation woes

THE GOVERNMENT fully awarded its offer of Treasury bills (T-bills) on Monday at mostly higher rates on expectations of faster June inflation, which may cause the Bangko Sentral ng Pilipinas (BSP) to be hawkish.

The Bureau of the Treasury (BTr) raised P15 billion as planned from its auction of T-bills on Monday with bids reaching P32.76 billion or more than twice the offered amount.

Broken down, the Treasury made a full P5-billion award of 91-day securities as the tenor attracted P18.67 billion in bids. The average rate of the tenor climbed by 5.3 basis points (bps) to 1.908% from the 1.855% fetched at the previous auction. Accepted rates ranged from 1.725% to 1.95%.

The BTr also raised P5 billion as planned from the 182-day debt papers, with total tenders reaching P6.38 billion. The tenor’s average rate went up by 20.8 bps to 2.608% from the 2.4% fetched for a partial award last week, with the government accepting offers ranging from 2.428% to 2.85%.

Lastly, the government awarded P5 billion in 364-day debt papers as programmed, with bids reaching P7.71 billion. The average rate of the one year-month tenor climbed by 18.1 bps to 2.811% from the 2.63% seen at last week’s auction, with the yields on the awarded bids at the 2.6-2.924​​% band.

At the secondary market prior to Monday’s auction, the 91-, 182- and 364-day T-bills were quoted at 1.7829%, 2.2109%, and 2.6057%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

National Treasurer Rosalia V. de Leon said in a Viber message to reporters after the auction that T-bill rates rose on Monday as the BSP last week said inflation could have reached an over three-year high in June.

“Rates sustained upward adjustments with inflation forecast from BSP exceeding 6%. The market is seeing the BSP delivering a harder rate punch to quash inflation,” Ms. De Leon said.

Still, she said the higher rates seen on Monday remain aligned with secondary market levels. Ms. De Leon said government bonds have seen a repricing in the secondary market amid higher inflation expectations.

The first trader said the T-bill offer was met with “robust demand as expected as investors reinvest some proceeds from a government bond maturity that was due [on] July 4.”

“It’s refreshing to see a full award… Demand was mainly concentrated on the 91-day Treasury bills as investors chose to park some excess liquidity on the shortest offering while waiting for firm cues on the direction of interest rates,” the first trader said in a Viber message.

A second trader noted that even as Monday’s offer was over twice oversubscribed, yields rose across all tenors.

“Clearly, market is defensive ahead of [Tuesday’s] CPI (consumer price index) data,” the second trader said.

The Philippine Statistics Authority will release its June inflation report on Tuesday, July 5.

A BusinessWorld poll of 16 analysts last week yielded a median estimate of 6% for June headline inflation, within the 5.7-6.5% forecast given by the central bank.

If realized, this would be well above the BSP’s 2-4% target and 5% forecast for the year and would also be faster than the 5.4% print in May and 3.7% in June last year.

This would also be the quickest headline print since the 6.1% seen in November 2018.

BSP Governor Felipe M. Medalla last week said the central bank may consider a more aggressive rate hike at its Aug. 18 meeting if inflation maintains its upward momentum, but noted the decision will remain data dependent.

The BSP Monetary Board on June 23 raised benchmark interest rates by 25 bps for a second straight meeting to help temper rising prices. Inflation pressures have been mounting, with recently approved wage and fare hikes adding to commodity and food prices that have remained high due to supply constraints.

On Tuesday, the BTr will auction off P35 billion in seven-year Treasury bonds (T-bonds) with a remaining life of three years and seven months.

The Treasury wants to raise P200 billion from the domestic market in July, or P60 billion through T-bills and P140 billion via T-bonds.

The government borrows from local and external sources to help fund a budget deficit capped at P1.65 trillion this year, equivalent to 7.6% of gross domestic product. — D.G.C. Robles

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