Rates of T-bills, bonds to go up

RATES of government securities on offer this week could rise on expectations that inflation reached a new peak in September, which may lead to further aggressive tightening by the Bangko Sentral ng Pilipinas (BSP).

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 reissued seven-year Treasury bonds (T-bonds) with a remaining life of two years and six months.

A trader sees T-bill and T-bond yields moving higher at this week’s auctions amid expectations of faster headline inflation last month.

The trader expects the rates of the 91- and 364-day tenors to rise by 25-50 basis points (bps) from the last awarded yields, while the yield on the 182-day debt paper is seen to increase by 10-15 bps.

Meanwhile, the reissued seven-year bond may be quoted at 5.625% to 5.875%, the trader said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said T-bill and T-bond yields may rise to track the week-on-week movements of secondary market yields.

The 91- and 182-day T-bills rose by 37.68 bps and 13.80 bps week on week, respectively, to yield 3.153% and 3.8422%, while the 364-day paper dropped by 2.58 bps to 3.9022%, based on PHP Bloomberg Valuation Service Reference Rates as of Sept. 30 published on the Philippine Dealing System’s website.

Meanwhile, the two- and three-year T-bonds — the tenors closest to the remaining life of the bonds to be auctioned of this week — saw their rates rise by 5.71 bps and 4.56 bps week on week to 5.2158% and 5.5797%, respectively. The seven-year paper also climbed by 3.73 bps to yield 6.7166%.

Analysts from UnionBank Economics Research said sentiment in the local bond market is seen to remain subdued as inflation is anticipated reach new peaks, which could lead to more hikes from the BSP.

Headline inflation likely reached a fresh peak of 6.7% in September amid higher electricity rates and food prices, as well as the continued weakening of the peso versus the dollar.

A BusinessWorld poll of 13 analysts yielded a median estimate of 6.7% for September headline inflation, near the lower end of the central bank’s 6.6-7.4% estimate for the month.

If realized, this would be faster than the 6.3% print in August as well as the BSP’s 5.6% forecast and 2-4% target for the year.

BSP Governor Felipe M. Medalla last month said the central bank may need to continue hiking rates as the peso’s continued decline against the dollar due to a hawkish US Federal Reserve poses a risk to inflation.

The Monetary Board has hiked rates by 225 bps since May versus the Fed’s 300 bps since March.

Last week, the Treasury partially awarded its T-bill offer, only accepting bids for the six-month paper even as demand reached P17.664 billion, above the P15 billion on the auction block.

The Treasury borrowed just P3.35 billion via the 182-day securities versus the P5-billion offer despite bids for the tenor reaching P9 billion. The average rate of the tenor went up by 14.8 bps to 3.958% and accepted rates ranged from 3.9% to 4%.

The government rejected all bids for 91-day T-bills, with tenders for the tenor hitting just P4.6 billion, below the P5-billion program. Had it made a full award, the average rate of the three-month paper would have gone up by 207.9 bps to 4.397% from the 2.318% fetched in the last successful auction on Sept. 5.

The BTr also refused to award 364-day debt papers, with demand only reaching P4.064 billion versus the P5 billion on the auction block. Had the government accepted all bids, the debt paper’s average rate would have climbed by 110.6 bps to 4.888% from the 3.782% quoted for the one-year tenor on Aug. 22, the last successful award.

Meanwhile, the reissued seven-year bonds to be offered on Tuesday were last auctioned off on Dec. 11, 2018, where the BTr made a full P15-billion award at an average rate of 7.09%. The papers carry a coupon rate of 5.75%.

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. — D.G.C. Robles