Government grants full treasury bills at higher rates due to inflation concerns

THE GOVERNMENT fully granted its supply of treasury bills (T-bills) on Monday at generally higher rates on expectations of faster inflation in June, which could make the Bangko Sentral ng Pilipinas (BSP) hawkish.

The Bureau of Treasury (BTr) raised 15 billion pesos as expected from its treasury bill auction on Monday with bids reaching 32.76 billion pesos or more than double the offcalculated amount.

Broken down, the Treasury allotted a total of 5 billion pesos in 91-day securities, with the duration attracting 18.67 billion pesos in bids. The average tenor rate climbed 5.3 basis points (bps) to 1.908% from 1.855% in the previous auction. Accepted rates ranged from 1.725% to 1.95%.

BTr also raised 5 billion pesos as expected from 182-day debt, with total tenders reaching 6.38 billion pesos. The tenor’s average rate rose 20.8 basis points to 2.608% from the 2.4% recovered for a partial allotment last week, with the government accepting offers ranging from 2.428% to 2.85%.

Finally, the government granted 5 billion pesos in 364-day debt securities as planned, with offers reaching 7.71 billion pesos. The average rate for the 1-year and 1-month term rose 18.1 basis points to 2.811% from 2.63% at last week’s auction, with assigned bid yields between 2 .6 and 2.924%.

In the secondary market ahead of Monday’s auction, 91-day, 182-day and 364-day Treasury bills were quoted at 1.7829%, 2.2109% and 2.6057%, respectively, based on benchmark rates from PHP Bloomberg evaluation published on the Philippine Dealing System website.

National Treasurer Rosalia V. de Leon said in a Viber message to reporters after the auction that treasury bill rates rose on Monday, as the BSP said last week inFLation may have hit a more than three-year high in June.

“Rates have undergone upward adjustments with inflation forecast by BSP exceeding 6%. The market sees the BSP throwing a harder punch to stifle inflation,” Ms. De Leon said.

Still, she said the higher rates seen on Monday remain in line with secondary market levels. Ms De Leon said government bonds saw a revaluation in the secondary market amid higher inflation expectations.

The IfThe first trader said the treasury bill offer was met with “robust demand, as expected, as investors reinvest some of the proceeds from a government bond maturity that was due [on] 4th July.”

“It’s refreshing to see a full allocation… Demand was mostly concentrated in 91-day Treasury bills as investors opted to park excess liquidity on the shorter supply pending firm clues on the direction of interest rates,” the first trader said in a Viber message.

A second trader noted that although Monday’s bid was more than twice oversubscribed, yields rose across the board.

“Clearly, the market is defensive in front of [Tuesday’s] CPI (consumer price index) data,” the second trader said.

The Philippine Statistics Authority will release its June inflation report on Tuesday, July 5.

A Business world A poll of 16 analysts last week gave a median estimate of 6% for headline inflation in June, within the range of the central bank’s forecast of 5.7-6.5%.

If true, it would be well above BSP’s 2-4% target and 5% forecast for the year and would also be faster than the 5.4% printed in May and 3.7 % in June of last year.

It would also be the fastest stock since the 6.1% seen in November 2018.

BSP Governor Felipe M. Medalla said last week that the central bank may consider a more aggressive rate hike at its Aug. 18 meeting if inflation maintains its upward momentum, but noted that the decision would remain dependent on the data.

On June 23, the BSP Monetary Council raised benchmark interest rates by 25 basis points for a second consecutive meeting to help temper rising prices. InFLConstruction pressures have intensified, with recently approved wage and tariff hikes pushing up commodity and food prices which have remained high due to supply constraints.

On Tuesday, the BTr will auction 35 billion pesos in seven-year treasury bills (T-bonds) with a remaining life of three years and seven months.

The Treasury wants to raise 200 billion pesos on the domestic market in July, or 60 billion pesos via treasury bills and 140 billion pesos via treasury bonds.

The government is borrowing from local and external sources to help fund a budget deficit capped at 1.65 trillion pesos this year, equivalent to 7.6 percent of gross domestic product. — DGC Robles

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