Rates of T-bills, T-bonds may rise on BSP bets

RATES of government securities on offer this week could climb further as the market prices in another rate hike from the Bangko Sentral ng Pilipinas (BSP) after inflation reached a fresh peak last month.

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, it will auction off P35 billion in fresh seven-year Treasury bonds (T-bonds).

A trader sees T-bill and T-bond yields moving higher at this week’s auctions following the higher consumer price index (CPI) print for September.

“Ultimately, the market will start pricing in BSP’s next move, which could be another 50-basis-point (bp) hike come November, or maybe even earlier,” the trader added.

The trader expects T-bill yields to go up by 25 to 50 bps from the last successful award, while the average rate of the fresh seven-year paper could range between 7% and 7.25%.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said T-bill and T-bond yields may rise slightly as latest inflation data would support further rate hikes from the BSP.

The $2-billion global bond sale by the National Government might be an offsetting positive factor, Mr. Ricafort added in a Viber message, as it “reduces the government’s need to borrow domestically, thereby avoiding the crowding out of other private borrowers in the domestic market.”

The government last week raised $2 billion from its second dollar bond issuance of the year, comprised of five- and 10.5-year bonds, as well as 25-year sustainability bonds.

Meanwhile, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said he expects significant demand for the seven-year debt paper if the BTr accepts bids between 6.8% and 7%, with the market also monitoring the US Federal Reserve’s next move.

Philippine headline inflation picked up to its fastest pace in more than 13 years in September due to higher food costs.

The CPI was at 6.9% last month, up from 6.3% in August and 4.2% in the same month last year. It matched the 6.9% print in October 2018 and was the fastest since the 7.2% pace logged in February 2009.

The September print marked the sixth straight month that inflation breached the central bank’s 2-4% target for the year.

For the first nine months, headline inflation averaged 5.1%, faster than the 4% seen in the same period last year but below the BSP’s 5.6% forecast for 2022.

The Monetary Board has so far raised borrowing costs by 225 bps since May. Its next policy-setting meeting will be on Nov. 17.

Meanwhile, the US central bank has raised borrowing costs by 300 bps since March, with Fed chief Jerome H. Powell earlier saying they are strongly committed to bringing down inflation and may need to keep rates high for longer to achieve this goal.

At the secondary market on Friday, the 91- 182- and 364-day T-bills were quoted at 3.1811%, 3.65%, and 3.8471%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the seven-year bond fetched a yield of 6.7463%.

Last week, the Treasury rejected all bids for its offer of T-bills, with demand only reaching P14.2 billion, below the P15 billion on the auction block. 

Broken down, the Treasury turned down all bids for the 91-day T-bills even as total tenders for the tenor reached P5.78 billion, above the P5-billion plan. Had the Treasury made a full award, the three-month debt paper would have fetched an average rate of 4.66%, surging by 234.2 bps from the 2.318% seen for the last successful award of the tenor on Sept. 5.

The BTr also rejected all tenders for the 182-day securities, with total bids coming in at P4.78 billion, lower than the programmed P5 billion. For a full award, the average rate of the six-month T-bill would have gone up by 94.40 bps to 4.902% from the 3.958% quoted for the tenor at the Sept. 27 auction.

Lastly, the government did not award any 364-day debt papers as demand stood at only P3.678 billion, below the P5-billion offer. Had the Treasury accepted these bids, the average yield on the one-year T-bill would have jumped by 115.5 bps to 4.937% from the 3.782% fetched for the tenor when they were last awarded 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. — Diego Gabriel C. Robles