Auction rates seen mixed

RATES of the Treasury bills (T-bills) and Treasury bonds (T-bonds) to be auctioned off this week may end mixed as the situation in the Middle East remains volatile, and ahead of the release of May inflation data that could show a further acceleration in consumer price hikes.

The Bureau of the Treasury (BTr) will offer up to P47 billion in T-bills on Monday, or P15-20 billion in 91-day papers, P12-17 billion in 182-day securities, and P7-10 billion in 364-day debt.

On Tuesday, the government wants to borrow P30 billion from reissued 20-year T-bonds with a remaining life of five years and one month.

T-bill and T-bond rates could follow the mixed week-on-week yield movements at the secondary market amid continued global volatility due to lingering uncertainty over the peace negotiations between the United States and Iran, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The reissued bonds could fetch yields ranging from 7.375% to 7.425% amid expectations of faster May inflation, a bond trader added.

At the secondary market on Friday, the rates of the 91- and 182-day T-bills went down by 6.7 basis points (bps) and 5.52 bps week on week to close at 4.9893% and 5.4041%, according to the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System website. Meanwhile, the 364-day paper rose by 15.33 bps to yield 6.1067%.

For its part, the yield on the 20-year bond went down by 9.77 bps week on week to end at 7.5829%, while the five-year paper, the benchmark tenor closest to the remaining life of the reissued debt on offer this week, dropped by 11.63 bps to fetch 7.3377%.

Philippine inflation could have hit an over three-year high in May as elevated energy costs and a weakening peso due to the Middle East conflict likely continued to drive up domestic consumer prices.

A BusinessWorld poll of 16 economists yielded a median estimate of 7.9% for the May consumer price index (CPI), up from 7.2% in April and 1.3% in the same month last year.

If realized, this would be the quickest pace since the 8.6% in February 2023 and would match the upper end of the BSP’s 7.1%-7.9% forecast for the month. May would also be the third month in a row that the CPI was above the central bank’s 2%-4% target for the year.

Last week, the government raised P32.78 billion via the T-bills it auctioned off, below the P35-billion plan, even as total tenders reached P68.32 billion.

Broken down, the Treasury borrowed P15 billion as planned via the 90-day T-bills as demand for the tenor reached P30.29 billion. The three-month paper fetched an average rate of 5.142%, increasing by 6.8 bps from the previous week. Bids accepted had yields ranging from 5% to 5.225%.

The government also raised the programmed P13 billion via the 181-day debt as tenders reached P31.25 billion. The average rate of the six-month T-bill was at 5.7%, declining by 19.4 bps from the last auction. Tenders awarded carried rates from 5.698% to 5.701%.

Meanwhile, the BTr sold only P4.78 billion in the 363-day securities, below the P7 billion on offer, as demand for the tenor reached just P6.78 billion. The one-year paper fetched an average yield of 6.163%, rising by 12.6 bps week on week. Accepted bids had rates from 6% to 6.3%.

For its part, the reissued 20-year T-bonds to be sold on Tuesday were last auctioned off on April 14, where the government raised P30 billion as planned at an average rate of 6.328%, below the 8% coupon rate. Strong demand for that offering led the BTr to open its tap facility to raise P10 billion more at the same average rate.

The Treasury is looking 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