The Philippine government made only a partial award of the Treasury bills (T-bills) it offered on Monday, as investors demanded higher yields amid fears that inflation will remain elevated in the near term with the Middle East conflict unresolved.

The Bureau of the Treasury (BTr) raised just P38.69 billion from the T-bills, falling short of the P45-billion offering even though total tenders reached P60.032 billion. Demand was weaker than the P65.102 billion in bids recorded last week for the same amount placed on the auction block.

The Treasury described the results as mixed, saying it opted for partial awards on the 91- and 182-day T-bills to limit the rise in yields. Partial awards are a routine tool the BTr uses when it judges bid yields too high, borrowing less than planned rather than paying steeper rates.

For the 91-day T-bills, the government borrowed only P14.765 billion against a P20-billion offer, with bids for the tenor reaching P18.234 billion. The three-month paper fetched an average rate of 5.214%, up 7.6 basis points (bps) from 5.138% last week. Accepted tenders carried yields between 5.15% and 5.298%.

For the 182-day papers, the government raised just P13.925 billion, below the P15-billion plan, despite tenders of P25.033 billion. The average yield on the six-month T-bill stood at 5.622%, rising 10.5 bps from 5.517% previously. Awarded bid rates ranged from 5.52% to 5.75%.

Meanwhile, the BTr fully sold its P10-billion target of 364-day securities, with demand for the tenor totaling P16.765 billion. The one-year paper fetched an average rate of 5.807%, climbing 9 bps from 5.717% a week earlier. Accepted yields ranged from 5.748% to 5.865%.

Ahead of Monday's auction, the 91-, 182-, and 364-day T-bills were quoted at 5.1144%, 5.4803%, and 5.7424%, respectively, at the secondary market, based on PHP Bloomberg Valuation Service Reference Rates data from the Treasury.

"The low demand is likely due to lack of activity today as well as the recent sharp rise in yields, tracking the increase in oil prices due to the US-Iran conflict," a trader said in a text message.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the partial award came as the BTr rejected high bid yields due to weak demand, and as the re-escalation of the conflict drove up energy costs and weakened the peso — factors that could add to inflation pressures and eventually lead to further monetary tightening.

The Philippines imports the bulk of the oil it consumes, so global crude price swings pass through quickly into domestic fuel and transport costs, which is why oil-driven inflation fears weigh directly on local debt market sentiment.

He noted that while Philippine headline inflation eased slightly last month, the print remained far above the Bangko Sentral ng Pilipinas' (BSP) 3% target and its 2%-4% tolerance band.

Inflation slowed to 6.1% in August from 6.2% in July, though it accelerated from 1.5% a year earlier, according to government data released on Friday.

That was the slowest headline reading in five months, or since the 4.1% posted in March, and fell within the central bank's 5.5%-6.5% forecast. However, it was slightly faster than the 6% median estimate of 20 analysts polled by BusinessWorld.

August nonetheless marked the sixth straight month that the headline print settled above the BSP's 3% goal.

In the eight months to August, inflation averaged 5.2%. The BSP expects inflation to average 6.1% this year.

On Aug. 27, the Monetary Board raised benchmark rates by 25 bps for a third consecutive meeting, a preemptive move to address price pressures as policymakers expect inflation to peak in the fourth quarter due to rising global oil prices, strong El Niño conditions, and possible wage hikes. That brought cumulative increases since April to 75 bps.

BSP Governor Eli M. Remolona, Jr. earlier said the central bank hopes there will be no need for further tightening, but left the door open to more hikes if necessary to bring inflation closer to target.

The Monetary Board's last two policy reviews this year are scheduled for Oct. 22 and Dec. 17.

On Tuesday, the government aims to raise P30 billion from reissued 10-year Treasury bonds (T-bonds) with a remaining life of six years and 11 months.

The BTr plans to raise up to P380 billion from the domestic market this month — P250 billion via T-bills and P130 billion through T-bonds.

The government borrows from both 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. — Aaron Michael C. Sy