T-bill yields rise amid US-Iran deadlock

THE GOVERNMENT made a partial award of the Treasury bills (T-bills) it offered on Monday as yields climbed across all tenors with the United States and Iran still unable to forge a peace deal, which drove up oil prices anew and stoked inflation concerns.

The Bureau of the Treasury (BTr) raised only P27.51 billion via the T-bills it auctioned off, below the P32-billion plan, even as total tenders reached P44.861 billion. Still, this was a shade higher than the P44.295 billion in demand recorded on May 4.

“Results were mixed in today’s Treasury bills auction, with the Auction Committee raising the awarded bids for the 91-day T-bills to P12 billion, while partially awarding the 182- and 364-day securities,” the Treasury said in a statement.

Broken down, the Treasury borrowed P12 billion as planned via the 91-day T-bills as demand for the tenor reached P24.111 billion. The three-month paper fetched an average rate of 4.85%, increasing by 13.9 basis points (bps) from 4.711% last week. Bids accepted had yields ranging from 4.79% to 4.923%.

Meanwhile, the government raised just P9.8 billion via 182-day debt, below the P10-billion offering despite tenders reaching P14.24 billion. The average rate of the six-month T-bill was at 5.27%, climbing by 31.6 bps from 4.954% previously. Tenders awarded carried rates from 5.1% to 5.27%.

For the 364-day securities, the BTr accepted all P6.51 billion in submitted bids, which was below the P10 billion on offer. The one-year paper fetched an average yield of 5.719%, rising by 34.2 bps from 5.377% last week. Accepted bids had rates from 5.42% to 6%.

At the secondary market before Monday’s auction, the 91-, 182-, and 364-day T-bills were quoted at 4.7998%, 5.2372%, and 5.4295%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

“The government securities market continues to snooze as the US and Iran cannot strike a deal. Yields on the front end rose via the T-bill auction, which was very weak due to poor tenders,” a trader said in an e-mail.

President Donald J. Trump’s swift rejection of Iran’s response to a US peace proposal sent oil prices surging on Monday amid concerns the 10-week-old conflict will drag on, keeping shipping through the Strait of Hormuz paralyzed, Reuters reported.

Days after the US floated an offer in the hopes of re-opening negotiations, Iran on Sunday released a response focused on ending the war on all fronts, especially Lebanon, where US ally Israel is fighting Iran-backed Hezbollah militants.

Tehran also included a demand for compensation for war damage and emphasized Iranian sovereignty over the Strait of Hormuz, Iranian state TV said.

It also called on the US to end its naval blockade, guarantee no further attacks, lift sanctions and end a US ban on Iranian oil sales, the semi-official Tasnim news agency said.

Within hours, Mr. Trump dismissed Iran’s proposal with a post on social media.

The US had proposed an end to fighting before starting talks on more contentious issues, including Iran’s nuclear program.

Following Mr. Trump’s rejection of its demands, Tehran said on Monday it believed its proposal to end the war was “generous and responsible.”

Oil prices jumped by more than 3.5% on Monday on news of the continued deadlock that leaves the Strait of Hormuz largely closed. Before the war began on Feb. 28, the narrow waterway carried one-fifth of the world’s oil and liquefied natural gas flows, and has emerged as one of the central pressure points in the war.

T-bill yields rose for the third straight week due to inflation concerns amid the Middle East conflict, especially after the faster-than-expected April consumer price index (CPI) that could push the Bangko Sentral ng Pilipinas (BSP) to hike rates further, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Headline inflation surged to an over three-year high of 7.2% in April from 4.1% in March and 1.4% in the same month a year ago.

This was the fastest print since the 7.6% recorded in March 2023 and also marked the second straight month that the CPI was above the central bank’s 2%-4% tolerance band.

This was likewise well above the 5.5% median estimate in a BusinessWorld poll of 17 analysts and the BSP’s 5.6%-6.4% forecast for the month.

For the first four months, inflation averaged 3.9%.

BSP Governor Eli M. Remolona, Jr. has signaled further tightening ahead via small increases to keep inflation expectations anchored. Meanwhile, analysts have said that the central bank may need to be more forceful amid to manage spiraling consumer prices.

On Tuesday, the government wants to raise P30 billion from reissued seven-year T-bonds with a remaining life of four years and eight months.

The BTr wants to raise P268 billion from the domestic market this month, or P128 billion via T-bills and P140 billion through Treasury 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. — A.M.C. Sy with Reuters