Rates of Treasury bills, bonds to move sideways ahead of CPI

RATES of government securities on offer this week could move sideways ahead of the release of November inflation data.

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, the BTr will also offer P35 billion in reissued 25-year Treasury bonds (T-bonds) with a remaining life of 11 years and 11 months.

A trader said in a text message that T-bill and T-bond yields could move sideways this week ahead of the release of the November consumer price index (CPI) report.

For the reissued 25-year T-bonds, the trader expects yields to range between 7.125% and 7.375%.

A BusinessWorld poll of 15 analysts last week yielded a median estimate of 7.8% for November headline inflation.

If realized, this would mark the eighth straight month that inflation breached the Bangko Sentral ng Pilipinas’ (BSP) annual 2-4% target.

This is also quicker than the 3.7% print a year earlier and a tad faster than the 7.7% print in October.

The headline inflation figure will likewise match the 7.8% seen in December 2008. It will be the fastest pace in exactly 14 years or since the 9.1% in November 2008.

The Philippine Statistics Authority is set to release official CPI data on Tuesday, Dec. 6.

Analysts from UnionBank Economics Research said in a report that the market will be wary of higher-than-expected November inflation and signals of further tightening from the US Federal Reserve.

Chicago Federal Reserve Bank President Charles Evans on Friday said that the US central bank will likely need to raise borrowing costs to a “slightly higher” peak than envisioned in forecasts from September, Reuters reported.

This, after Fed Chair Jerome H. Powell on Wednesday said the central bank would scale back the pace of its rate hikes.

The Fed has raised borrowing costs by 375 bps since March from near zero to a 3.75-4% range. It will hold its final policy meeting for the year on Dec. 13-14.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message that T-bill and T-bond rates could be “mixed” this week ahead of an expected BSP rate hike at its own meeting on Dec. 15.

BSP Governor Felipe M. Medalla said on Friday that the central bank will hike interest rates by either 25 or 50 basis points (bps) at its last policy meeting for the year.

The central bank has increased benchmark interest rates by 300 bps since May to tame inflation, with the policy rate now at 5%.

At the secondary market on Friday, the 91- 182- and 364-day T-bills were quoted at 4.1448%, 4.8476%, and 5.2414%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the 25-year paper fetched a yield of 7.4008%, while the 10-year paper, the tenor closest to the remaining life of the bonds on offer this week, was quoted at 6.9976%.

Last week, the government partially awarded the T-bills it auctioned off even as bids reached P35.787 billion, higher than the P15-billion offer.

Broken down, the Treasury raised P5 billion as planned via the 91-day securities on Monday, with tenders reaching P25.987 billion. The average rate of the tenor went down by 17 bps to 4.205% from 4.375%, with accepted rates ranging from 4.14% to 4.248%.

Meanwhile, the government awarded just P2.1 billion in 182-day T-bills, even as bids hit P5.78 billion, above the P5-billion program. The six-month paper fetched an average rate of 4.92%, inching down by 0.1 bp from the 4.921% quoted for the previous award. Accepted rates were all at 4.92%.

Lastly, the BTr borrowed only P2.52 billion via the 364-day debt papers, with demand reaching just P4.02 billion, lower than the P5 billion on the auction block. The average rate of the one-year paper inched up by 0.8 bp to 5.15% from 5.142% previously, with the Treasury only accepting offers with a yield of 5.15%.

Meanwhile, the reissued 25-year bonds to be offered on Tuesday were last auctioned off on Nov. 15. The Treasury raised P35 billion as planned from that offering, with total bids reaching P80.953 billion.

At that auction, the bonds were awarded at an average rate of 8.168%, 91.2 bps lower than the 9.08% average quoted for the bond when it was first offered on Nov. 3, 2009 and 108.2 bps below the 9.25% coupon for the issue.

The Treasury plans to raise P135 billion from the domestic market in December, or P30 billion via T-bills and P105 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