Treasury bills, bonds may fetch higher rates after BSP decision

RATES of government securities on offer this week are expected to increase following the central bank’s decision to hike borrowing costs amid rising inflation.

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

On Tuesday, it will auction off P35 billion in reissued 10-year Treasury bonds (T-bonds) that have a remaining life of nine years and eight months.

A trader said in a Viber message that yields on the T-bills on offer on Monday could climb by 20 to 25 basis points (bps), while the average rate of the reissued 10-year bond could be between 6.625% and 7%.

“Market will now factor in prospects of high inflation in the months to come following Bangko Sentral ng Pilipinas’ (BSP) revised inflation outlook given continued elevated commodity prices,” the trader added.

A second trader said in a Viber message that T-bill and T-bond yields may end higher this week to track the BSP’s move to raise borrowing costs.

“GS (government securities) yields were already elevated prior to the announcement, so expect market players to watch the 10-year auction and see how [the] BTr will award.”

The second trader added the market is also waiting for the BTr’s June borrowing plan set to be released later this week for leads and how this would be affected by the lower demand for government debt seen at recent auctions.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said T-bill yields could inch up by 0.05 bp to 0.09 bp. He added that the seven-year bond could see its average rate inch up by 0.12 bp to 0.33 bp.

He said auction rates could rise due to the increase in secondary market yields as well as the BSP’s decision and inflation fears amid higher global oil prices and wages.

The BSP raised benchmark interest rates for the first time since 2018 to tame rising inflation.

The Monetary Board on Thursday increased the key policy rate by 25 bps to 2.25%, as expected by eight out of 17 analysts in a BusinessWorld poll last week. Interest rates on the overnight deposit and lending facilities were also hiked by 25 bps to 1.75% and 2.75%, respectively.

Inflation climbed to 4.9% in April, the highest in more than three years, as oil and commodity prices soared amid the Russia-Ukraine war and supply chain disruptions.

At the meeting, the central bank upwardly revised its average inflation forecast for 2022 to 4.6% from the previous forecast of 4.3%, exceeding the 2%-4% target band. For 2023, the BSP’s inflation forecast was hiked to 3.9% from 3.6% previously.

The start of the BSP’s tightening cycle came a week after the release of data showing gross domestic product (GDP) expanded by a better-than-expected 8.3% in the first quarter.

At the secondary market on Friday, the 91- 182- and 364-day T-bills were quoted at 1.4627%, 1.7553%, and 2.0119%, respectively, based on the PHP BVAL Reference Rates as of May 20 published on the Philippine Dealing System’s website.

Meanwhile, the 10-year bond fetched a yield of 6.416%.

Last week, the government rejected all tenders for its T-bill offer as investors asked for higher rates on expectations of monetary policy tightening.

Broken down, the Treasury did not award 91-day T-bills even as bids reached P13.3 billion, higher than the P5-billion program. Had the Treasury made a full award, the three-month tenor would have fetched an average rate of 1.759%, 22.8 bps higher than 1.531% seen at the previous award.

The BTr also rejected the P7.33 billion in tenders for the 182-day debt papers, even as this was higher than the P5-billion plan. Had the BTr fully awarded its offer, the average rate of the six-month paper would have been at 2.215%, up 53.78 bps from the 1.6772% quoted for the tenor at the secondary market before Monday’s auction.

Lastly, the government turned down bids for the 364-day debt papers despite demand reaching P7.17 billion versus the P5-billion offer. Had the tenor been fully awarded, the one-year instrument would have been quoted at an average rate of 2.828%, 86.61 bps higher than the 1.9619% yield on the tenor at the secondary market.

Meanwhile, the last time the 10-year T-bonds up for auction on Tuesday were offered was on April 26, where the bonds were partially awarded. The government raised just P17.559 billion at that auction, less than the programmed P35 billion, at an average rate of 6.313%, 22.1 bps higher than the 6.092% quoted at for the bonds previously.

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

The government borrows from local and external sources to help fund a budget deficit capped at 7.7% of GDP this year. — T.J. Tomas

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