T-bills fetch mostly higher rates as BSP signals further tightening

YIELDS on the Treasury bills (T-bills) offered by the government ended mostly higher on Monday after the Bangko Sentral ng Pilipinas (BSP) hiked rates and signaled further tightening to help cool rising prices due to the Iran war.

The Bureau of the Treasury (BTr) raised P37.646 billion via the T-bills it auctioned off, above the P30-billion plan as total tenders reached P73.491 billion or more than twice the amount on offer. However, this was lower than the P127.256 billion in demand recorded on April 26.

Strong demand for the 91-day and 182-day papers prompted the Auction Committee to double its acceptance of noncompetitive bids for these tenors to P9.6 billion and P7.2 billion, respectively, the BTr said in a statement.

Meanwhile, it partially awarded the one-year T-bill to cap its average rate.

Broken down, the Treasury raised P16.8 billion via the 91-day T-bills, above the P12 billion it placed on the auction block as demand for the tenor reached P36.945 billion. The three-month paper fetched an average rate of 4.558%, inching down by 1.6 basis points (bps) from 4.542% last week. Bids accepted had yields ranging from 4.5% to 4.635%.

For the 182-day debt, the government borrowed P12.6 billion, higher than the P9-billion offering as tenders reached P23.15 billion. The average rate of the six-month T-bill was at 4.737%, rising by 8.8 bps from 4.649% previously. Tenders awarded carried rates from 4.675% to 4.849%.

Meanwhile, the BTr sold only P8.246 billion in 364-day securities, below the P9 billion on offer even as bids totaled P13.396 billion. The one-year paper fetched an average yield of 5.184%, increasing by 13.2 bps from 5.052% last week. Accepted bids had rates from 4.95% to 5.097%.

At the secondary market before Monday’s auction, the 91-, 182-, and 364-day T-bills were quoted at 4.5469%, 4.6632%, and 5.0583%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

“The lower volume and upward yield movement is likely due to the rate hike last week, as well as BSP Governor Eli M. Remolona, Jr.’s statements to expect more rate hikes,” a trader said in a text message.

“Treasury bill average auction yields mostly corrected slightly higher after the latest 25-bp BSP rate hike to 4.5% and signals of future BSP rate hikes if the war in the Middle East is prolonged and if inflation remains way above the target of 2%-4% in an effort to bring back inflation to the said target eventually as a policy priority and fulfill the central bank’s mandate of price stability,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

This comes as continued uncertainty over peace talks between the United States and Iran has pushed up global crude oil prices anew, he said.

He added that the peso’s recent weakness could also push up import costs, adding to inflation risks.

Last week, the Monetary Board raised the benchmark rates by 25 bps, marking its first hike since October 2023.

Mr. Remolona signaled further tightening ahead via “a succession of modest rate hikes” as they try to quell spiraling prices due to the Middle East conflict amid worsening inflation expectations brought by the global oil shock.

The central bank raised its inflation forecasts to 6.3% for 2026 and 4.3% for 2027 from 5.1% and 3.8% previously. Both are above its 2%-4% tolerance band.

Oil prices were up more than 1% on Monday as peace talks between the US and Iran stalled while shipments through the Strait of Hormuz remained limited, keeping global oil supplies tight, Reuters reported.

Hopes of reviving peace efforts receded on Saturday when US President Donald J. Trump  scrapped a visit to Islamabad by his envoys Steve Witkoff and Jared Kushner. Iranian Foreign Minister Abbas Araqchi shuttled to and from mediators Pakistan and Oman on Sunday before flying to Russia, with the two sides still seemingly far apart on issues including Iran’s nuclear ambitions and access through the crucial Strait of Hormuz.

On Tuesday, the BTr is targeting to raise P40 billion to P60 billion from a dual-tenor Treasury bond (T-bond) offering, or P20 billion to P30 billion each via reissued seven-year debt with a remaining life of four years and two months, and 10-year notes with a remaining life of nine years and 10 months.

The Treasury is looking to borrow up to P248 billion from the domestic market this month or P140 billion via T-bills and P108 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.61 trillion or 5.3% of gross domestic product this year. — Aaron Michael C. Sy