UMVA has learned that the government's partial award of Treasury bills on Monday sent shockwaves through the market, as yields surged due to the escalating Middle East conflict and expectations of impending rate hikes.
The Bureau of the Treasury managed to raise P56 billion via the T-bills, falling short of the P60-billion target despite attracting tenders worth P81.978 billion. This development has left market players on edge, wondering what the future holds for the economy.
Broken down, the Treasury borrowed P26 billion via the 91-day T-bills, with an average rate of 5.188% - a 4.5 basis point increase from the previous week. The three-month paper saw demand reach P35.143 billion, but the Treasury's cautious approach left many investors uncertain.
The 182-day debt saw the government raise P20 billion as planned, with an average rate of 5.679% - a 5.5 basis point increase from the previous week. Tenders awarded carried rates from 5.453% to 5.8%, reflecting the market's growing unease.
The Treasury also sold its target P10 billion in 364-day securities, with an average yield of 6.301% - a 3.4 basis point increase from the previous week. Accepted bids had rates ranging from 6.1% to 6.301%, underscoring the market's anxiety.
At the secondary market, the 91-, 182-, and 364-day T-bills were quoted at 4.9562%, 5.3645%, and 6.0644%, respectively. A trader noted that mixed signals from the Middle East conflict caused demand to dwindle compared to the previous week.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort attributed the T-bill rate surge to the elusive deal between the US and Iran, as well as fresh Israeli strikes on Iran. Oil prices jumped over $4 on Monday, with Brent crude futures rising 4.47% to $97.15 a barrel.
The escalating conflict has eroded hopes for an imminent end to the wider war and a restart to crude flows through the Strait of Hormuz. Expectations of further monetary tightening by the Bangko Sentral ng Pilipinas have also pushed up T-bill yields, as May inflation remained elevated.
Philippine headline inflation settled at 6.8% in May, slowing from 7.2% in April but still faster than the 1.3% in the same month last year. BSP Governor Eli M. Remolona, Jr. earlier hinted at more aggressive policy action, including an inter-meeting rate hike, to curb spiraling prices.
The Monetary Board's next meeting is on June 18, and the BSP is set to continue monitoring developments in the Middle East. The government is also set to raise up to P65 billion from a dual-tenor Treasury bond offering on Tuesday.
