Gov’t fully awards T-bill offer at higher rates ahead of BSP review

THE GOVERNMENT fully awarded its offer of Treasury bills (T-bills) as investors asked for higher rates ahead of the Bangko Sentral ng Pilipinas’ (BSP) Monetary Board’s meeting on Thursday, where it is expected to hike borrowing costs anew.

The Bureau of the Treasury (BTr) raised P15 billion as planned from its auction of T-bills on Monday, with bids reaching P40.532 billion.

Broken down, the Treasury made a full P5-billion award of its offer of 91-day securities as the tenor attracted P14.61 billion in bids. The average rate of the three-month T-bill went up by 2.4 basis points (bps) to 1.874% from the 1.85% fetched at the previous auction. Accepted rates ranged from 1.825% to 1.91%.

The government also borrowed P5 billion as planned via the 182-day securities as tenders reached P18.01 billion. The average rate of the tenor rose by 1.5 bps to 3.226% from the 3.211% fetched at the previous auction as accepted rates were from 3.22% to 3.243%.

Lastly, the BTr raised P5 billion as programmed from the 364-day debt papers, with demand for the tenor reaching P7.92 billion. The average rate of the one-year T-bill rose by 7.7 bps to 3.712% from the 3.635% fetched at the previous auction, with the government accepting offers with yields from 3.6% to 3.8%.

At the secondary market prior to Monday’s auction, the 91-, 182- and 364-day T-bills were quoted at 2.0768%, 3.0247%, and 3.6568%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

T-bill rates climbed across all tenors as the market expects the BSP to raise borrowing costs again at its Aug. 18 meeting, National Treasurer Rosalia V. de Leon told reporters in a Viber message after Monday’s auction.

“Similarly, the Federal Reserve seems unswayed by the softer July CPI (consumer price index) and Fed Chair Jerome H. Powell remains focused on “vanquishing the foe,” Ms. De Leon added.

The first trader said T-bill rates rose slightly as expected ahead of the BSP’s policy review this week.

“No surprises here. The results were broadly in line with expectations. All eyes are now on the Monetary Board decision later this week so investors are really just on wait-and-see mode,” the second trader added.

The BSP is widely expected to raise its benchmark rates anew on Thursday, with most analysts forecasting a 50-bp increase as inflation remains elevated.    

A BusinessWorld poll held last week showed 16 out of 18 analysts expect the Monetary Board to hike rates at its meeting on Aug. 18.

For 13 analysts, the central bank may deliver a hike of 50 bps, while three analysts see a 25-bp increase. Only two analysts expect the BSP to keep rates unchanged.

BSP Governor Felipe M. Medalla earlier said the central bank’s policy-setting Monetary Board may hike rates by 50 bps at their meeting this week inflation quickened to 6.4% in July, a near four-year high. This was also faster than the 6.1% in June and 3.7% a year ago.

For the first seven months, headline inflation averaged by 4.7%, higher than the 4% seen in the same period in 2021 and the central bank’s 2-4% target for the year but lower than its 5% forecast.

The Monetary Board has raised rates by a total of 125 bps since May, including a 75-bp off-cycle hike last month.

Meanwhile, the average rise in US consumer and producer prices slowed in July, which could indicate that inflation has peaked and lead to less aggressive hikes from the Fed.

The US consumer price index ended flat month on month last July from 1.3% in June. On an annual basis, consumer inflation rose by 8.5% in July, slower than 9.1% in June.

On the other hand, the producer price index for final demand declined by 0.5% last month after climbing by 1% in June. In the 12 months through July, it increased by 9.8% after rising by 11.3% in June.

The Fed has raised its key rates by 225 bps since March to temper soaring inflation.

On Tuesday, the BTr will auction off P35 billion in 10-year Treasury bonds (T-bonds) with a remaining life of nine years and 10 months.

The Treasury wants to raise P215 billion from the domestic market this month, or P75 billion through T-bills and P140 billion via T-bonds.

The government borrows from local and external sources to help fund a budget deficit capped at P1.65 trillion this year, equivalent to 7.6% of gross domestic product. — Diego Gabriel C. Robles