Yields on Treasury bills rise as Middle East conflict escalates

THE GOVERNMENT made a partial award of the Treasury bills it offered on Monday as yields rose due to the latest flare-up in the Middle East conflict and expectations of rate hikes despite slower-than-expected May inflation.

The Bureau of the Treasury (BTr) raised P56 billion via the T-bills it auctioned off, below the P60-billion target despite tenders reaching P81.978 billion, slightly higher than the P70.505 billion in demand seen on June 1.

Broken down, the Treasury borrowed P26 billion via the 91-day T-bills, below the P30-billion program despite demand for the tenor reaching P35.143 billion. The three-month paper fetched an average rate of 5.188%, rising by 4.5 basis points (bps) from 5.143% last week. Bids accepted had yields ranging from 5% to 5.249%.

For the 182-day debt, the government raised P20 billion as planned as tenders reached P29.592 billion. The average rate of the six-month T-bill was at 5.679%, up by 5.5 bps from 5.624% previously. Tenders awarded carried rates from 5.453% to 5.8%.

Lastly, the BTr sold its target P10 billion in 364-day securities as demand for the tenor totaled P17.245 billion. The one-year paper fetched an average yield of 6.301%, rising by 3.4 bps from 6.267% last week. Accepted bids had rates from 6.1% to 6.301%.

At the secondary market before Monday’s auction, the 91-, 182-, and 364-day T-bills were quoted at 4.9562%, 5.3645%, and 6.0644%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data from the Treasury.

“Mixed signals from conflicting news about the Middle East conflict caused demand from market players to dwindle compared to last week,” a trader said in a text message.

T-bill rates rose as a deal between the United States and Iran to extend the ceasefire and reopen the Strait of Hormuz remains elusive, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Oil prices jumped more than $4 on Monday, with investors spooked by fresh Israeli strikes on Iran as well as renewed attacks on Lebanon a day earlier, Reuters reported.

Brent crude futures rose $4.42 or 4.47% to $97.15 a barrel as of 0609 GMT, while US crude futures were up $4.07 or 4.50% at $94.61 per barrel.

Israel said on Monday it hit a petrochemical plant in Iran’s southwest, along with strikes elsewhere on military targets. That’s despite US President Donald J. Trump reportedly telling Israeli Prime Minister Benjamin Netanyahu to refrain from further attacks.

In the first hit on an energy site inside Iran since the April 8 ceasefire, Israel said it struck targets at the Mahshahr petrochemical complex. A provincial official told Iran’s semi-official Fars news agency parts of the plant were damaged.

Hopes are now eroding for an imminent end to the wider war and a restart to crude flows through the Strait of Hormuz, through which roughly a fifth of the world’s oil and liquefied natural gas used to transit.

Expectations of further monetary tightening by the Bangko Sentral ng Pilipinas (BSP) as May inflation remained elevated despite easing from the month prior also pushed up T-bill yields, Mr. Ricafort added.

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.

This was the first time since November 2025 that the headline print eased month on month, and was the slowest pace since the 4.1% in March.

The May reading was also below the 7.9% median estimate of 16 economists for the month in a BusinessWorld poll, as well as the central bank’s 7.1-7.9% forecast.

Still, this was the third month in a row that the consumer price index breached the central bank’s 2%-4% tolerance range.

It also brought the five-month average past the goal at 4.5%.

BSP Governor Eli M. Remolona, Jr. earlier said that they are considering more aggressive policy action, including an inter-meeting rate hike, to help curb spiraling prices as the Middle East conflict continues to stoke inflation.

The Monetary Board on April 23 delivered its first rate increase in over two years, raising benchmark borrowing costs by 25 bps to bring the policy rate to 4.5%.

Its next meeting is on June 18.

The BSP said on Friday that it will continue to monitor developments in the Middle East, with inflation expected to remain above its comfort band this year and next.

On Tuesday, the government is targeting to raise up to P65 billion from a dual-tenor Treasury bond (T-bond) offering. Broken down, it will offer P30-40 billion in reissued seven-year T-bonds with a remaining life of three years and four months, and P20-25 billion in 25-year notes with a remaining life of eight years and four months.

The Treasury is looking to raise P268 billion from the domestic market this month, or P128 billion via T-bills and P140 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