Treasury bills fetch lower rates, mixed demand

TREASURY BILLS (T-bills) offered on Monday fetched lower yields as the market corrected following a decline in global oil prices last week amid a temporary ceasefire between the United States and Iran, although demand was largely skewed towards shorter tenors as uncertainty remains high.

The Bureau of the Treasury (BTr) raised P32.06 billion via the T-bills it auctioned off, above its P30-billion program as total tenders reached P99.425 billion or more than thrice the amount on offer. This was also higher than the P50.203 billion in demand recorded on April 6.

The government fully awarded the 91-day and 182-day papers, with strong demand and lower yields prompting the Auction Committee to double its acceptance of noncompetitive bids for both tenors to P7.2 billion, it said in a statement. Meanwhile, it partially awarded the one-year T-bill to cap its average rate.

Broken down, the Treasury raised P16.8 billion via the 91-day T-bills, well above the P12 billion it placed on the auction block, as demand for the tenor reached P50.825 billion. The three-month paper fetched an average rate of 4.75%, falling by 23.5 basis points (bps) from 4.985% last week. Bids accepted had yields ranging from 4.7% to 4.798%.

The government also borrowed P10.71 billion via the 182-day debt, higher than the P9-billion offering as tenders reached P34.715 billion. The average rate of the six-month T-bill was at 4.882%, declining by 19.8 bps from 5.08% previously. Tenders awarded carried rates from 4.81% to 4.995%.

Meanwhile, the BTr sold only P4.55 billion in 364-day securities, below the P9 billion on offer, even as bids totaled P13.885 billion. The one-year paper fetched an average yield of 5.168%, down by 3.6 bps from 5.204% last week. Accepted bids had rates from 5.138% to 5.19%.

At the secondary market before Monday’s auction, the 91-, 182-, and 364-day T-bills were quoted at 4.7599%, 4.9141%, and 5.1591%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

T-bill yields corrected lower to mirror the week-on-week decline in comparable secondary market rates as the US-Iran truce caused global oil prices to go down, leading to lower domestic pump prices that eased inflation concerns slightly, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“T-bill average auction yields also declined after relatively large total bids versus previous weeks especially since the war in the Middle East started,” he said.

“There was high demand for shorter tenors again, similar to last week. Also, yields moved lower despite the upward movement of oil prices and US Treasury yields,” a trader said in a text message.

Demand for risk assets rebounded following the US-Iran ceasefire deal announced last week, although sentiment soured anew on Monday as talks between the warring countries ended with no agreement over the weekend.

Oil prices surged on Monday as the US moved to impose a blockade on Iranian shipping after the collapse of weekend peace talks, Reuters reported.

The US move, aimed at putting pressure on Tehran, leaves a fragile ceasefire hanging in the balance and no end in sight to the choke on Middle East energy exports — though the mood on trading floors leaned toward hoping for a resolution.

Brent crude futures were up 7.3% at $102 a barrel — a gain of more than 40% since the war shut navigation of the Strait of Hormuz.

US Treasuries and bonds around Asia traded lower, with Japan’s benchmark 10-year yield hitting a 29-year high of 2.49%, though moves were relatively modest and took most assets to roughly where they sat before last week’s ceasefire.

The Wall Street Journal reported that Mr. Trump and his advisers were weighing limited strikes on Iran, though there were no immediate reports of attacks in the Asia day.

Mr. Trump said on Sunday that the price of oil and gasoline ​may remain high into the midterm elections in the US in November, a rare acknowledgement of the potential political fallout from the war.

With inflation fears reviving, investors are now bracing for central banks, such as the European Central Bank and Bank of England, tilting towards raising rates in a sharp reversal from pre-war bets on rate cuts or a prolonged pause.

On Tuesday, the BTr is targeting to raise P20 billion to P30 billion from reissued 20-year Treasury bonds (T-bonds) with a remaining life of five years and three months.

The Treasury wants to borrow up to 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 P1.61 trillion or 5.3% of gross domestic product this year. — A.M.C. Sy with Reuters