THE GOVERNMENT made a full award of the 35-day Treasury bills (T-bills) it offered on Tuesday on strong demand as rates settled close to the headline inflation print.

The Bureau of the Treasury (BTr) raised P15 billion via 35-day T-bills as planned on Tuesday out of total bids worth P22.815 billion. Despite the oversubscription, the demand for the 35-day papers on Tuesday was lower compared to P34.4 billion in tenders seen the previous week.

The papers fetched an average rate of 2.102%, up 3.6 basis points (bps) from the 2.065% seen in the June 2 auction.

National Treasurer Rosalia V. de Leon said after the auction that investors preferred yields close to the inflation rate.

“Notice average is 2.1%, (indicating that) banks want (rates) to be within inflation,” Ms. De Leon told reporters via Viber.

Headline inflation eased to 2.1% in May from 2.2% in April and 3.2% in the same month a year ago, hitting a six-month low as prices of food and transportation costs declined.

This brought the year-to-date average to 2.5%, still within the central bank’s 2-4% target for this year.

Meanwhile, a bond trader said demand for the 35-day T-bills on Tuesday was smaller than the previous auction as investors searched for higher yields, particularly after the Bangko Sentral ng Pilipinas (BSP) reopened its 14-day term deposit facility (TDF) and its P200-billion offerings under the reverse repurchase (RRP) facility.

“The tenders are smaller by about P12 billion compared to June 2. It can be attributed to market’s preference for higher yield especially now that BSP has reopened the 14-day TDF and increased its RRP volume to P200 billion,” the trader said via Viber yesterday.

The central bank temporarily halted its TDF auctions during the Luzon lockdown around mid-March and resumed offering just the seven-day deposits in April. Last week, it offered the 14-day tenor again after three months. Meanwhile, auctions for the one-month tenor remain suspended.

The trader added that the market is also waiting to see if the Treasury will conduct another jumbo bond sale anytime soon.

Ms. De Leon has said they are gauging demand for a jumbo issue or a retail Treasury bond (RTB) sale, saying they will remain “watchful of developments and risk return tolerance of investors.”

The last time the BTr offered RTBs was in February when it raised a record P310.8 billion from its sale of the three-year papers.

The government plans to borrow P170 billion from the local market in June: P110 billion via weekly T-bill auctions and the remaining P60 billion in Treasury bonds to be offered fortnightly.

The state borrows to fund its budget deficit which is now seen to hit 8.1% of gross domestic product. — B.M. Laforga