Short-term bills fetch higher yields on BSP hike, Iran talks

THE GOVERNMENT fully awarded the short-term bills it offered on Monday as it saw robust demand, although yields were mostly higher following the Philippine central bank’s latest rate hike and as the Middle East conflict remains unresolved.

The Bureau of the Treasury (BTr) raised P100 billion as planned from the cash management bills (CMBs) and Treasury bills (T-bills) it auctioned off as total tenders reached P180.746 billion. This was higher than the P148.329 billion in demand seen for a P90-billion offer on June 15.

For the cash management bills, the government awarded P40 billion as programmed as bids reached P57.49 billion.

Broken down, it sold P20 billion in 35-day CMBs as demand for the tenor was at P36.275 billion. The one-month paper fetched an average rate of 4.738%, rising by 12.7 bps from the 4.611% quoted for the tenor last week. Accepted bid yields ranged from 4.66% to 4.79%.

The Treasury also raised P20 billion from the 63-day bills as demand reached P21.215 billion. The two-month papers fetched an average rate of 5.052%, up by 11 bps from 4.942% in the previous auction. Accepted rates were between 4.875% and 5.125%.

For the T-bills, the BTr fully awarded its P60-billion offer, with total tenders at P123.256 billion.

Broken down, the Treasury borrowed P20 billion via the 91-day T-bills as demand for the tenor reached P24.81 billion. The three-month paper fetched an average rate of 5.217%, rising by 4.6 bps from 5.171% last week. Bids accepted had yields from 5.1% to 5.29%.

For the 182-day debt, the government raised P20 billion as tenders reached P45.794 billion. The average rate of the six-month T-bill was at 5.754%, up by 6 bps from 5.694% previously. Tenders awarded carried rates from 5.575% to 5.8%.

Lastly, the BTr sold P20 billion in 364-day securities as bids for the tenor totaled P52.652 billion. The one-year paper fetched an average yield of 6.034%, down by 9 bps from 6.124% last week. Accepted bids had rates from 5.948% to 6.08%.

At the secondary market before Monday’s auction, the 35-, 91-, 182-, and 364-day T-bills were quoted at 4.7491%, 5.0886%, 5.5095%, and 6.0183%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data from the Treasury.

The government fully awarded its offering of short-term bills on “overall stronger demand for T-bills and CMBs week on week, likely due to the rate hike and subsequent profit-taking last week,” a trader said in a text message.

Short-term yields were mostly higher as the Bangko Sentral ng Pilipinas (BSP) chief said following their latest policy decision that further tightening is possible as inflation risks persist, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

On Thursday, the Monetary Board raised benchmark interest rates by 25 bps for the second straight meeting, bring the policy rate to 4.75%.

BSP Governor Eli M. Remolona, Jr. said they have room to tighten further as they see inflation settling at 6.4% this year and 4.5% next year, slightly faster than previous estimates of 6.3% and 4.3%, respectively. These are well above the central bank’s 2%-4% tolerance range.

“Yields also generally went up, tracking oil prices as the Middle East conflict continues,” the trader added.

Oil prices declined on Monday after US-Iran talks concluded in Switzerland with Tehran saying it had secured waivers for oil and petrochemical exports, easing worries about a supply shortage in global markets, Reuters reported.

Brent crude fell $1.68 or 2.09% to $78.89 a barrel by 0633 GMT. Prices had climbed to $82.30 at the start of trading, fueled by a bumpy start to the talks with threats from US President Donald J. Trump to restart the war on Iran and Tehran’s announcement it had again closed the Strait of Hormuz.

US West Texas Intermediate crude futures were at $76 a barrel, down 60 cents, ahead of the contract’s expiry later on Monday. The more active August contract fell 69 cents to $75.16 a barrel. There was no settlement in the US market on Friday due to a holiday.

High-ranking US and Iranian officials wrapped up their first round of talks in Switzerland on Monday, mediators said. The talks began on Sunday under the terms of a memorandum of understanding reached last week to extend a tenuous ceasefire from April for at least another 60 days.

Hawkish signals from the US Federal Reserve also pushed up short-term rates, Mr. Ricafort added.

The US central bank last week held rates steady in a 3.5% to 3.75% range as Kevin Warsh began his era in charge with a sweeping policy review, Reuters reported.

Updated interest rate projections showed nearly half of policymakers now expect a hike this year as inflation concerns mount, although the new Fed chair did not provide his view.

The Fed funds futures market is pricing in 68% odds of a rate hike by September, LSEG data showed.

On Tuesday, the government is targeting to borrow up to P60 billion from a dual-tenor Treasury bond (T-bond) offering, or P30-40 billion from reissued seven-year bonds with a remaining life of four years and one month, and P10-20 billion via reissued 10-year notes with a remaining life of nine years and eight months.

The Treasury wants to raise P268 billion from the domestic market this month or P128 billion via T-bills and P140 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 with Reuters