Treasury bills, bonds seen to fetch higher rates

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RATES of government securities on offer this week are expected to climb further as investors expect the Bangko Sentral ng Pilipinas (BSP) to hike borrowing costs aggressively next month amid rising inflation.

The Bureau of the Treasury (BTr) will offer P15 billion in Treasury bills (T-bills) on Monday, made up of P5 billion each in 91-, 182-, and 364-day debt papers.

On Tuesday, the BTr will auction off P35 billion in 10-year Treasury bonds (T-bonds) with a remaining life of six years and six months.

Traders said yields on the government debt on offer this week are expected to climb after BSP Governor Felipe M. Medalla said the central bank is prepared to move aggressively amid growing risks to the inflation outlook.

“Treasury bills will likely climb even higher by 10-15 bps (basis points) more this week. The seven-year reissue will likely range from 6.75% to 7%. The BSP governor signaled that a 50-bp rate hike is already a possibility, so yields of government securities will be pressured higher, especially on the short end sector of the curve,” the first trader said.

The second trader likewise said yields will climb as the market anticipates a 50-bp hike from the BSP at its meeting on Aug. 18. The trader expects T-bill rates to rise by 5-15 bps and the yields on the reissued bonds to range from 6.7% to 7%.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said yields on the T-bills to be auctioned off on Monday could rise slightly and track secondary market movements.

Mr. Ricafort said secondary market yields on T-bills climbed on Mr. Medalla’s hawkish signals amid rising inflation and the peso’s decline against the dollar.

Mr. Medalla last week said the BSP is prepared to raise its policy rate by 50 bps at their Aug. 18 meeting to keep inflation in check after the peso on Thursday breached the P56 level against the dollar to move closer to its record low.

He said the US central bank’s hawkish stance has placed “strong depreciation pressures” on global currencies such as the peso, which adds to inflation risks.

The peso closed at P56.06 versus the dollar on Thursday, down by 39 centavos or 0.7% from the previous day, data from the Bankers Association of the Philippines showed.

This is the peso’s worst finish since Sept. 27, 2005’s P56.30 a dollar and just 39 centavos away from the record low of P56.45 on Oct. 14, 2004.

The Monetary Board has raised benchmark interest rates by a total of 50 bps so far this year via 25-bp hikes at its May 19 and June 23 meetings, bringing the policy rate to 2.5%.

Mr. Medalla last week said the BSP may hike rates by at least 100 bps more this year, after inflation reached 6.1% in June, the fastest in nearly four years.

The June headline print brought inflation in the first half to an average of 4.4%, above the central bank’s 2–4% target but still lower than its 5% forecast for this year.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills were quoted at 1.8515%, 2.3971%, and 2.6928%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the 10-year bond fetched a yield of 6.9239%, while the seven-year tenor, the benchmark closest to the remaining life of the bonds to be offered on Tuesday, was quoted at 6.4363%.

Last week, the BTr fully awarded its offer of T-bills, raising P15 billion as planned from total bids of P32.76 billion.

Broken down, the Treasury raised P5 billion as programmed from its offer of 91-day securities as the tenor attracted P18.67 billion in bids. The average rate of the tenor climbed by 5.3 bps to 1.908 from the 1.855% fetched at the previous auction. Accepted rates ranged from 1.725% to 1.95%.

The BTr also borrowed P5 billion as planned from the 182-day debt papers, with total tenders reaching P6.38 billion. The tenor’s average rate went up by 20.8 bps to 2.608% from the 2.4% fetched for a partial award previously, with the government accepting offers ranging from 2.428% to 2.85%.

Lastly, the government fully awarded P5 billion in 364-day debt papers, with bids reaching P7.71 billion. The average rate of the one-year tenor climbed by 18.1 bps to 2.811% from the 2.63% seen at the previous auction, with the yields on the awarded bids at the 2.6-2.924​​% band.

On the other hand, the reissued 10-year papers to be offered on Tuesday were last auctioned off on Feb. 18, 2020, where the BTr made a full P30-billion award of the bonds at an average rate of 4.409%.

The Treasury wants to raise P200 billion from the domestic market in July, or P60 billion through T-bills and P140 billion via T-bonds.

The government borrows from local and external sources to help fund a budget deficit capped at 7.6% of gross domestic product this year. — Diego Gabriel C. Robles