Inflation concerns push up Treasury bill yields

THE GOVERNMENT made a partial award of the Treasury bills (T-bills) it offered on Monday as yields on the longer tenors went up due to expectations of faster Philippine inflation in March amid the Middle East conflict’s impact on oil trade, fueling bets of monetary tightening.

The Bureau of the Treasury (BTr) raised only P22.8 billion via the T-bills it auctioned off, below the P27-billion target, even as total tenders were at P50.203 billion or nearly twice the amount on offer. This was also higher than the P36.78 billion in bids recorded on March 23.

“Results were mixed in today’s Treasury bills auction, with the Auction Committee fully awarding bids for the 91- and 182-day T-bills while partially awarding the 364-day securities,” it said in a statement.

Broken down, for the 91-day T-bills, the government raised P9 billion as planned as demand  for the tenor reached P26.66 billion. The three-month paper fetched an average rate of 4.985%, easing by 1.9 basis points (bps) from 5.004% last week. Bids accepted had yields ranging from 4.898% to 5.025%.

The Treasury likewise borrowed the programmed P9 billion via the 182-day debt as tenders reached P16.552 billion. The average rate of the six-month T-bill was at 5.08%, rising by 4.8 bps from 5.032% previously. Tenders awarded carried rates from 5.014% to 5.199%.

Meanwhile, the BTr sold just P4.8 billion in 364-day securities, below the P9-billion plan as the offer was undersubscribed, with bids reaching only P6.991 billion. The one-year paper fetched an average yield of 5.204%, up by 3.8 bps from 5.166% last week. Accepted bids had rates from 5.148% to 5.25%.

At the secondary market before Monday’s auction, the 91-, 182-, and 364-day T-bills were quoted at 4.9897%, 5.1253%, and 5.1803%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

T-bill rates were “mostly higher as investors demand better returns amid inflation risks,” a trader said in a text message.

Yields continued to go up on expectations that Philippine headline inflation rose last month as global crude prices continue to surge due to the Middle East war, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The sharp increase in local fuel pump prices could lead to higher prices and overall inflation that could breach the BSP’s (Bangko Sentral ng Pilipinas) inflation target range of 2%-4% in the coming months, that, in turn, could lead to rate hikes to fulfill the price stability mandate,” he said.

Higher oil prices due to fuel trade disruptions amid the Middle East war and rising rice costs may have pushed Philippine inflation to its fastest pace in nearly two years, analysts said.

A BusinessWorld poll of 18 analysts yielded a median estimate of 3.8% for the March consumer price index, faster than the 2.4% in February and 1.8% a year ago.

This is near the upper end of BSP’s 3.1%-3.9% forecast for the month and its 2%-4% annual target. The print would also be the quickest in 20 months or since the 4.4% seen in July 2024.

BSP Governor Eli M. Remolona, Jr. earlier said that future policy decisions will depend on second-round price effects from the Middle East war, adding that oil prices reaching $200 a barrel could prompt them to hike rates.

The Monetary Board last month left its benchmark rates unchanged in an off-cycle meeting as it said that current inflation pressures are supply-driven, for which policy adjustments have little impact.   

It will hold its next review on April 23.

On Tuesday, the government is looking to raise up to P40 billion from a dual-tenor Treasury bond (T-bond) offering, or P20 billion to P30 billion each via reissued seven year T-bonds with a remaining life of three years and one month and reissued 25-year securities with a remaining life of eight years and seven months.

The BTr wants to borrow P248 billion from the domestic market this month, or P140 billion via T-bills and P108 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.647 trillion or 5.3% of gross domestic product this year. — Aaron Michael C. Sy