Rates of T-bills, bonds to climb

RATES of government securities on offer this week may rise as the Bangko Sentral ng Pilipinas (BSP) chief signaled another aggressive hike next month amid growing inflation pressures.

The Bureau of the Treasury (BTr) will auction off 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, it will offer P35 billion in fresh 10-year Treasury bonds (T-bonds).

A trader sees T-bill and T-bond yields moving higher at this week’s auctions after BSP Governor Felipe M. Medalla hinted at another big rate increase at their policy meeting next month.

“Expect investors to demand higher T-bill yields as the BSP bills were awarded at as high as 5.2125% earlier,” the trader said, referring to the full awarding of 28-day BSP securities worth P120 billion on Friday, with accepted yields ranging from 4.7% to 5.2125% for an average of 4.9781%.

“This can be attributed to the BSP governor’s statement of a possible 50-75 bps (basis points) hike next month.”

Bid yields for the 10-year T-bond are expected to range from 7.35% to 7.5%, the trader added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said T-bill and T-bond yields could go up again as traders anticipate policy makers to fire off a large increase at the Monetary Board’s rate-setting meeting on Nov. 17.

“BSP Governor Medalla signaled possible large local policy rate hike of 50 or 75 bps at the next rate-setting meeting … in an effort to reduce the pressure on the peso and also cool inflation as this could impact economic recovery,” Mr. Ricafort said in a Viber message.

The BSP “also signaled a combination of measures such as using international reserves, raising rates, and, if possible, some form of international cooperation,” Mr. Ricafort added.

Meanwhile, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said higher US inflation, which fueled expectations for a fourth straight 75-bp increase from the Federal Reserve, will likely keep rates of long tenors above 7%, with this week’s offering of 10-year bonds expected to fetch yields between 7.25% and 7.5%.

On Thursday, Mr. Medalla said in a Bloomberg Television interview that the BSP will consider another outsized rate increase in their Nov. 17 review to support the currency and prevent its depreciation against the dollar from further stoking inflation.

The BSP chief said they are looking at a 50-bp or 75-bp increase next month to help rein in inflation and ease currency pressures stemming from a strong dollar amid the Fed’s hawkish stance.

The Philippine central bank has raised benchmark rates by 225 bps since May.

Meanwhile, US consumer prices increased by 0.4% in September as rent and food costs surged. Year on year, the US consumer price index advanced by 8.2%, reinforcing expectations that the Fed will deliver a fourth straight 75-bp rate hike next month.

The US Fed has raised borrowing costs by 300 bps since March.

At the secondary market on Friday, the 91- 182- and 364-day T-bills were quoted at 3.3704%, 4.0154%, and 3.881%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the 10-year bond fetched a yield of 7.2021%.

Last week, the Bureau of the Treasury (BTr) raised just P3.97 billion from its T-bill offer, even as total tenders reached P16.31 billion, above the P15 billion on the auction block.

Broken down, the BTr borrowed just P1.27 billion through the 91-day T-bills, even with total bids reaching P7.58 billion, above the P5-billion plan. The average rate of the tenor rose by 150.1 bps to 3.819% from the 2.318% seen on Sept. 5, the last successful award. Accepted rates ranged from 3.6% to 4.25%.

The Treasury also raised only P2.695 billion via the 182-day securities despite tenders reaching P5.645 billion versus the P5-billion program. The average rate of the six-month T-bill went up by 45.7 bps to 4.415% from the 3.958% quoted during for the last successful award on Sept. 26. Accepted rates ranged from 4% to 4.65%.   

Meanwhile, the BTr refused to award any 364-day debt papers, with demand for the tenor only reaching P3.081 billion versus the P5 billion on the auction block. Had the government accepted all bids, the one-year T-bill’s average rate would have climbed by 161.9 bps to 5.401% from 3.782% fetched for the last successful award on Aug. 22.

The BTr wants to raise P200 billion from the domestic market this month, 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. — Luisa Maria Jacinta C. Jocson