Gov’t partially awards T-bills at higher yields

THE GOVERNMENT partially awarded the T-bills it auctioned off on Monday at higher rates on expectations of a higher April inflation, which could give the central bank an impetus to hike borrowing costs earlier than planned.

The Bureau of the Treasury (BTr) awarded just P12.613 billion in T-bills at its auction on Monday, slightly below the P15-billion program, even as the offer was oversubscribed, with bids reaching P23.731 billion.

Broken down, the government made a full P5-billion award of the 91-day debt papers as the offer attracted P10.536 billion in bids. The average rate of the three-month papers climbed by 13.2 basis points (bps) to 1.272% from the 1.14% seen at the previous auction.

The Treasury also raised P5 billion as planned from the 182-day securities as tenders reached P8.852 billion. The average yield on the tenor went up by 7.7 bps to 1.635% from the 1.558% quoted the previous week.

Meanwhile, the BTr made a partial P2.613-billion award of its offer of 364-day instruments as bids came in at just P4.613 billion, less than the P5 billion on the auction block. The average rate of the one-year tenor was at 1.933%, up by 3.2 bps from the 1.901% fetched at the previous auction.

At the secondary market on Monday prior to the auction, the 91-, 182, and 364-day T-bills fetched rates of 1.2501%, 1.5600%, and 1.9332% 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 the BTr made a partial award as the market expects April inflation to have settled at around 4.6%.

Investors were also “immersed” in the aggressive tone of the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve, Ms. De Leon added.

The first trader said in a Viber message that demand for short-term debt papers “waned as dealers and investors wait for the Federal Open Market Committee (FOMC) meeting and April CPI (consumer price index) figure due towards the end of the week.”

A second trader said in an e-mail that demand for T-bills has been weak since last week, noting the market prefers slightly longer tenors with higher yields.

Inflation likely accelerated beyond the central bank’s target in April, analysts said, as food and oil prices continue to climb amid the ongoing Russia-Ukraine war and agricultural damage caused by Tropical Storm Agaton.

A BusinessWorld poll of 17 analysts yielded a median estimate of 4.6% for the April CPI, matching the midpoint of the BSP’s 4.2% to 5% forecast.

If realized, this would be faster than the 4% in March and the 4.5% in April 2021 and would be the first time that inflation would exceed the BSP’s 2-4% target band since the 4.2% print in November 2021. It will also match the 4.6% print seen in October.

April inflation data will be released on May 5.

Meanwhile, BSP Governor Benjamin E. Diokno said in an interview with Bloomberg TV last week that the central bank may consider hiking key interest rates at its June 23 meeting.

This marks a departure from Mr. Diokno’s previous statements that the central bank would only consider normalizing its stance in the second half or when the Philippine economy’s recovery firms up.

As for the US central bank, investors widely expect the Fed to raise rates by 50 bps when the FOMC meets on May 3-4, Reuters reported.

They are also bracing for signals from Fed Chair Jerome H. Powell about the future path of interest rates, the central bank’s plans for reducing its balance sheet and its view on when inflation will recede.

Policy makers raised rates in March by 25 bps, the first increase since 2018.

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

The government borrows from local and external sources to plug a budget deficit capped at 7.7% of gross domestic product this year. — T.J. Tomas with Reuters