The upcoming auctions of Treasury bills (T-bills) and Treasury bonds (T-bonds) are expected to be met with mixed yields due to ongoing uncertainty surrounding the Middle East conflict and hawkish signals from the central bank.
The Bureau of the Treasury will offer P50 billion in T-bills on Monday, consisting of P20 billion each in 91- and 182-day papers and P10 billion in 364-day debt. The government aims to raise P30 billion from reissued 10-year T-bonds with a remaining life of seven years and one month on Tuesday.
Local monetary authorities have indicated a cautious approach, despite slower-than-expected June inflation data. This could result in little change in T-bill rates, mirroring secondary market movements. Meanwhile, the reissued 10-year bonds may fetch higher yields due to the fresh flareup in tensions between the United States and Iran.
At the secondary market, the 91-day T-bill dropped by 6.6 basis points week on week to yield 5.0577%, while the 182- and 364-day securities went up by 4.69 bps and 0.41 bp to close at 5.5776% and 5.9518%, respectively. The 10-year bond rose by 11.52 bps week on week to fetch 7.2634%, while the seven-year debt, the tenor closest to the remaining life of the papers on offer this week, jumped by 16.18 bps to yield 7.1413%.
Headline inflation slowed to 6.4% in June from 6.8% in May, but was faster than the 1.4% pace logged in the same month last year. This marked the second consecutive month of deceleration, but also the fourth month in a row that inflation breached the central bank's 2%-4% tolerance band. The consumer price index averaged 4.8% for the first semester, also above the central bank's goal.
Core inflation, which discounts volatile fuel and food prices, bucked the headline trend and quickened for a sixth consecutive month to 4.4% in June from 4.1% in May and 2.2% last year. The central bank expects growth to rebound this semester on the back of likely faster government spending, but inflation pressures remain strong.
The central bank has raised benchmark borrowing costs by a total of 50 bps since April to curb spiraling prices and keep inflation expectations anchored amid the global oil shock caused by the Middle East conflict. The US military has launched fresh strikes on Iran, leading to a series of attacks between the two countries over the past several days.
Last week, the BTr raised P60 billion as planned from the T-bills it auctioned off, with total tenders reaching P136.841 billion, over twice as much as the amount on offer. The Treasury borrowed P20 billion via the 91-day T-bills, which fetched an average rate of 5.143%, while the 182-day debt and 364-day securities were also sold at average yields of 5.729% and 5.964%, respectively.
The government aims to raise P410 billion from the domestic market this month, with P250 billion to be raised via T-bills and P160 billion through T-bonds. The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.659 trillion or 5.4% of gross domestic product this year.
