RATES OF Treasury bills (T-bills) on offer today will likely inch up as tensions between the US and Iran continue.

The Bureau of the Treasury (BTr) will auction off P20 billion worth of T-bills on Monday, broken down into P6 billion for the 91-day and 182-day papers and another P8 billion for the 364-day securities.

“Expect Treasury bill levels to move slightly higher on increased geopolitical risk and weak general sentiment, and following the upward movement in the yield curve since the start of this (last) week,” said Carlyn Therese X. Dulay, first vice-president and head of Wholesale Treasury Sales at Security Bank Corp., via e-mail last week.

During the previous T-bill auction on Jan. 6, the government only awarded P19.104 billion out of its P20-billion program as yields on the one-year papers rose sharply.

Broken down, the Treasury borrowed P6 billion as planned via the three-month papers at the rate of 3.179%, 1.3 basis points (bps) lower compared to the 3.192% fetched during the Dec. 2 auction.

Another P6 billion was raised as programmed through the six-month T-bills, with the tenor fetching an average rate of 3.435%, higher than the previous offer’s 3.348%.

For the one-year securities, the BTr only accepted P7.104 out of the P8-billion program at a rate of 3.624%, 14.9 bps higher than the 3.475% fetched previously.

Meanwhile, at the secondary market last Friday, rates of the three-month, six-month and one-year papers ended at 3.264%, 3.427% and 3.749%, respectively, according to the PHP Bloomberg Valuation Service Reference Rates.

The tensions between the two countries escalated when US killed Iran’s top general, Qassem Soleimani, in a drone strike on Jan. 3, to which Iran retaliated by firing off missiles at US forces in Iraq.

Days after, news reports said the Iranian government admitted that they were the ones responsible for the crash of a Ukranian airline, killing all 176 on board.

The government said Iran’s air defense “unintentionally” shot down the aircraft as it was on high alert after its earlier missile attacks landed, which its president referred to as a “disastrous mistake” for the state.

Sought for comment, Jose Miguel B. Liboro, fixed-income head at ATRAM Trust Corp., said yields on the T-bills will likely move slightly higher amid faster-than-expected inflation data and as investors’ await for a retail Treasury bond (RTB) issuance.

“Apart from a higher than expected inflation print, which has already caused a sharp move higher across the yield curve, speculation of a possible RTB issuance over the next couple of months is weighing on investor demand,” Mr. Liboro said in an e-mail on Friday.

“Given that T-bill rates have already adjusted higher at the auction earlier [last] week, they are likely to remain flat to marginally higher against those levels with the BTr likely to cut awards should investor demand come in at higher levels,” he added.

The government reported last week that headline inflation picked up to 2.5% in December, averaging at the same rate in 2019.

Last year’s headline inflation average fell within the 2-4% official target and was significantly slower compared to 2018’s 5.2% print.

However, economists flagged the conflict between US and Iran as possible risks to inflation this year as it may cause global oil prices to spike.

The Treasury has set a P420-billion local borrowing program this quarter, broken down into P240 billion in T-bills and P180 billion via Treasury bonds.

The government plans to raise P1.4 trillion this year from local and foreign lenders to plug its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product. — Beatrice M. Laforga