TREASURY bill (T-bill) yields dipped across all tenors on Monday on strong demand despite lingering inflation risks on expectations oil prices are likely to stay elevated.
Combined tenders for the 91-, 182- and 364-day debt papers reached P134.519 billion, or 2.6 times the P50 billion offering of the Treasury. This pushed average T-bill yields down week-on-week.
However, Jonathan A. Ravelas, senior adviser at Reyes Tacandong and Co., offers a caveat: ‘I would caution against reading this as a signal of an aggressive decline in interest rates.’
Ravelas added he sees monetary authorities could remain on their toes as ‘the inflation outlook remains challenging.’
He noted that geopolitical tensions could keep oil prices higher while climate-related disruptions could hurt agricultural output and push food prices higher. This situation, Ravelas said, could keep the Bangko Sentral ng Pilipinas (BSP) cautious and data-dependent, as it will decide on its key policy rates on August 27.
Inflation is expected to rise in July, ending two consecutive months of easing in May and June, analysts at UnionBank of the Philippines said in its latest MktsFocUs report. According to the report, the inflation print reflects higher oil prices, a weaker peso that raises import costs, and firmer rice prices following the government’s higher procurement price signals.
‘Markets may be expecting some easing, but there is still a credible risk that policy rates could remain elevated or even rise by 50 to 75 basis points should inflation pressures re-emerge,’ Ravelas said.
‘For investors, the key takeaway is to stay defensive, maintain portfolio flexibility,’ he added.
Yields on the 91-day T-bills ranged from 5.023 percent to 5.094 percent. This averaged at 5.059 percent, down by 4.5 basis points from 5.104 percent in the previous auction last week.
The 182-day T-bills had rates ranging from 5.575 percent to 5.688 percent. Its average yield fell by 1.4 basis points to 5.181 percent, versus last week’s 5.685 percent.
Meanwhile, the 364-day T-bills fetched an average rate of 5.950 percent with a yield range of 5.9 percent to 5.973 percent. This is lower by 1.6 basis points than the notes’ average yield of 5.966 percent in the Treasury’s previous tender.
The auction committee raised its full programmed amount of P50 billion from the sale of the short-term debt papers, generating P20 billion each from 91-day and 182-day notes and P10 billion from 364-day government securities.
This Tuesday, the Treasury is set to auction 3-year and 20-year Treasury bonds to borrow as much as P50 billion from the domestic debt market.
Gross borrowings of the government surged by 119.54 percent to P579.569 billion in June from P263.991 billion in the same month last year. This brought total borrowings to P1.821 trillion in the first semester of the year.
The government plans to raise a total of P2.682 trillion this year, following a 70:30 borrowing mix.