Gov’t partially awards Treasury bills at higher rates

THE GOVERNMENT partially awarded the Treasury bills (T-bills) it offered on Monday, borrowing via the one-year paper for the first time since early last month even as investors asked for higher rates amid expectations of rate hikes here and abroad and an above 5% inflation print in May.

The Bureau of the Treasury (BTr) raised just P13.924 billion via the T-bills it auctioned off on Monday even as total tenders reached P42.654 billion, nearly triple the P15 billion on offer.

Broken down, the BTr raised P5 billion as planned through the 91-day debt papers as bids reached P20.790 billion. The average rate of the tenor went down by 20 basis points (bps) to 1.44% from the 1.46% seen last week.

The government also made a full P5-billion award of its offer of 182-day T-bills, with total bids reaching P15.02 billion. The average rate of the six-month tenor went up by 2.2 bps to 1.834% from the 1.812% fetched at last week’s auction.

Lastly, the Treasury partially awarded its offering of one-year securities, raising just P3.924 billion out of the P5-billion program from P6.84 billion in bids. The average rate of the one-year T-bill increased by 36.4 bps to 2.297% from the 1.933% quoted for the tenor’s last successful award on May 2.

At the secondary market prior to Monday’s auction, the 91-, 182- and 364-day T-bills were quoted at 1.4464%, 1.8098% and 2.2203%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

National Treasurer Rosalia V. de Leon said in a Viber message to reporters that the BTr partially awarded the one-year tenor as the offer saw higher bids compared to previous auctions, with the market already getting some clarity on the pace of the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve’s tightening path.

The market also priced in likely higher inflation in May, Ms. De Leon added.

The first trader said the BTr finally awarding one-year papers after four weeks of rejections for the tenor shows it is “finally [acknowledging] that expectations for higher rates are rising amidst price pressures and a hawkish Fed.”

The second trader noted while demand for the one-year T-bill has risen, investors still want a higher premium for the tenor amid inflation woes, which could cause the BSP to hike rates several times this year.

BSP Governor Benjamin E. Diokno last month said the central bank is likely to raise key interest rates by another 25 bps at its next policy review on June 23 following a hike of the same magnitude at its May 19 meeting to curb growing inflationary pressures.

At the May meeting, the central bank upwardly revised its average inflation forecast for 2022 to 4.6% from the previous forecast of 4.3%, above the 2-4% target band. For 2023, the BSP’s inflation forecast was hiked to 3.9% from 3.6% previously.

The BSP and analysts expect May headline inflation to have breached 5% amid higher fuel and food prices.

A BusinessWorld poll of 16 analysts held last week yielded a median estimate of 5.4% for May inflation, matching the midpoint of the BSP’s 5% to 5.8% estimate.

If realized, this would be faster than the 4.9% in April and the 4.1% print in May 2021. This would also be well above the central bank’s 2-4% target for the year.

Headline inflation last hit the 5% level in December 2018 and stood at 5.2% that month.

The Philippine Statistics Authority will release May inflation data on Tuesday, June 7.

Meanwhile, the Fed plans to hike rates aggressively for the rest of the year to control inflation and with the labor market showing recovery. It has raised borrowing costs by a cumulative 75 bps.

St. Louis Federal Reserve Bank President James Bullard last week said that while rate hikes from the previous months seemed to help tame inflation, the Russia-Ukraine conflict and the China lockdown’s effects can still overturn the progress.

Amid this uncertainty, Fed Governor Christopher J. Waller said he backs more 50-bp hikes in the coming months.

The BTr wants to raise P250 billion from the domestic market in June, or P75 billion through T-bills and P175 billion via Treasury bonds.

The government borrows from local and external sources to help fund a budget deficit capped at 7.7% of gross domestic product this year. — T.J. Tomas