Iran-Israel conflict pushes T-Bill rates higher; BTr makes partial award

The Bureau of the Treasury (BTr) made a partial award of Treasury bills (T-bills) worth P24.6 billion on Monday as interest rates mostly increased amid investors' worries about rising inflation due to the Iran-Israel conflict.

BTr initially programmed a total offer of P25 billion consisting of 91-day, 181-day, and 364-day T-bills. Total bids amounted to P65.5 billion or 2.6 times oversubscription.

The Treasury awarded P4.4 billion for the three-month debt papers, lower than the initial offer of P8 billion as their average rate rose to 5.530 percent from 5.459 percent recorded in its auction last 16 June.

However, BTr accepted a higher amount of P11.2 billion for the six-month papers, rising from the initial program of P8 billion. This was despite registering an increased average rate of 5.557 percent compared to the 5.523 percent in last week's auction.

BTr said officials were prompted to accept the higher rate as tenders for these debt papers climbed to P25.1 billion, surpassing total demand for 91-day papers at P20.5 billion and the one-year papers' P19.9 billion.

BTr awarded the full offer of P9 billion for the one-year papers which fetched an average rate of 5.655 percent, down from 5.657 percent in the previous auction.

Rizal Commercial Banking Corporation Chief Economist Michael Ricafort said the hikes in T-bills' rates reflected investors' projection of higher inflation and elevated policy rates from the Bangko Sentral ng Pilipinas (BSP).

"The surprise US-backed attacks on Iran's nuclear facilities on June 21 led to global crude oil prices to near five-month highs," he said.

Bloomberg's data on Monday showed the price of US-sourced crude oil slightly declined by 0.39 percent to $73.55 per barrel while Europe's Brent Crude inched down by 0.30 percent to $76.78 per barrel.

"The armed conflict could lead to some pickup in importation costs and overall inflation that could delay BSP and Federal Reserve (Fed) rate cuts," Ricafort said.

He said prospects of a shaky global economy have prompted financial market analysts to scale down their Fed rate cut outlook to 49 basis points from 50 basis points.

Ricafort said BSP might match possible slower Fed rate reduction to keep healthy levels of foreign direct investments and foreign exchange.

Weaker peso

The economist said the weaker peso against the US dollar on Monday signaled faster inflation as the local currency stood at P57.58/$1 from P57.17 last Friday based on data from the Bankers Association of the Philippines.

Sun Life Investment Management and Trust Corporation President Michael Enriquez said the peso-US dollar rate this year might fall within P58 to P61 per dollar under uncertain global economic conditions.

"As long as the peso depreciation is slow and steady, I think it should not affect inflation too much compared to wild swings," he said.