Rates of T-bills, bonds to rise on Fed, inflation

RATES of government securities on offer this week may climb ahead of the US Federal Reserve’s policy-setting meeting and on expectations of elevated Philippine October inflation.

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

The BTr will also offer P35 billion in fresh three-year Treasury bonds (T-bonds) on the same day.

The T-bill and T-bond auctions were moved from the usual Monday and Tuesday schedule due to public holidays on Oct. 31 and Nov. 1.

A trader expects the rates of T-bills and T-bonds on offer this week to move higher.

“T-bill rates may rise by 25 basis points (bps) if awarded, while the three-year bond could range between 6.375% and 6.625%,” the trader said in a text message.

A second trader said T-bill rates may rise by 5-10 bps from the previous auction.

“For bonds, we expect a coupon rate of 6.25-6.5%,” the trader added in a phone interview.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the upcoming Fed meeting and release of Philippine inflation data could cause T-bill and T-bond yields to go up at this week’s auctions.

“The markets are anticipating the widely expected Fed rate hike and the latest Philippine inflation data. An offsetting positive factor that could temper any further increase in T-bill and T-bond auction yields is the recent appreciation of the peso to the strongest in more than a month that could also help mitigate inflationary pressures,” Mr. Ricafort said in a text message.

Analysts from UnionBank Economics Research said in a market report that expectations of another Fed hike and higher Philippine inflation could boost risk appetite.

Investors widely expect the Fed to hike rates by as much as 75-bps at their Nov. 1-2 meeting to combat inflation. The Fed has so far raised rates a total of 300 bps since March.

At home, a BusinessWorld poll of 14 analysts last week yielded a median estimate of 7.2% for the October inflation, above the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target and 5.6% forecast for the year.

If realized, this would be faster than the 6.9% seen in September and the 4% last year, and be the quickest in over 14 years or since the 7.8% print logged in December 2008.

The Philippine Statistics Authority will release October inflation data on Friday, Nov. 4.

At the secondary market on Friday, the 91- 182- and 364-day T-bills were quoted at 3.7503%, 4.5345%, and 4.888%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the three-year bond fetched a yield of 6.3028%.

The government partially awarded the T-bills it auctioned off last week, even as total tenders reached P20.86 billion, higher than the programmed P15 billion.

Broken down, the BTr borrowed just P2.505 billion through the 91-day T-bills, even with total bids reaching P8.3 billion, above the P5-billion program. The average rate of the tenor rose by 190.2 bps to 4.22% from the 2.318% seen on Sept. 5, the last successful award.

The Treasury also raised only P2.1 billion via the 182-day securities despite tenders reaching P7.466 billion versus the P5 billion on the auction block. The average rate of the six-month T-bill went up by 69.2 bps to 4.65% from the 3.958% quoted for the last successful award on Sept. 26.

Lastly, the BTr awarded just P2.049 billion through the 364-day debt papers, even with demand for the tenor reaching P5.094 billion, higher than the P5-billion plan. The average rate of the tenor increased by 109.3 bps to 4.875% from 3.782% fetched for the last successful award on Aug. 22.

The Treasury plans to raise P215 billion from the domestic market in November, or P140 billion through T-bills and P75 billion from T-bonds.

The government borrows from local and external sources to help plug a budget deficit capped at 7.6% of gross domestic product this year. — Luisa Maria Jacinta C. Jocson