T-bills, bonds may fetch higher rates with inflation seen surging

GOVERNMENT SECURITIES to be auctioned off this week could fetch higher yields as investors want higher returns, with inflation seen to have surged last month.

The Bureau of the Treasury (BTr) will offer P15 billion in Treasury bills (T-bills) on Monday or P5 billion each in 91-, 182- and 364-day securities.

On Tuesday, it will auction off P35 billion in reissued seven-year Treasury bonds (T-bonds) with a remaining life of three years and eight months.

Traders said the government debt on offer this week could be quoted at higher rates as inflation is expected to have breached 5% in May.

“With consumer price index (CPI) poised to print 5.4% for May, we may see a cautious market next week,” a trader said in an e-mail.

The first trader said the average rate of the reissued seven-year T-bond would likely be between 5.3% and 5.5%.

“Expect upward pressure on rates to continue but the extent will be clearer once CPI data for May is out on Tuesday,” a second trader said via Viber, noting the data will influence the central bank’s rate hike path going forward.

The second trader added that the results of the T-bill auction will dictate the tone for Tuesday’s T-bond offering.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said T-bill rates could move slightly higher to track yield movements at the secondary market following the release of data showing outstanding National Government debt reached a new record high as of May.

The Philippine Statistics Authority will release the May inflation report on Tuesday, June 7.

Analysts said inflation likely accelerated and went above 5% last month as food and oil prices continued to climb due to disruptions in global supply chains.

A BusinessWorld poll of 16 analysts yielded a median estimate of 5.4% for May inflation, matching the midpoint of the Bangko Sentral ng Pilipinas’ (BSP) 5% to 5.8% outlook.

If realized, this would be faster than the 4.9% in April and the 4.1% print in May 2021. This would also be well above the central bank’s 2-4% target for the year.

Headline inflation last hit the 5% level in December 2018 and stood at 5.2% that month.

BSP Governor Benjamin E. Diokno last month said the central bank is likely to raise key interest rates by another 25 basis points (bps) at its next policy review on June 23 following a hike of the same magnitude at its May 19 meeting to curb growing inflationary pressures.

At the May meeting, the central bank upwardly revised its average inflation forecast for 2022 to 4.6% from the previous forecast of 4.3%, above the 2-4% target band. For 2023, the BSP’s inflation forecast was hiked to 3.9% from 3.6% previously.

Meanwhile, the National Government’s debt rose to a new record high of P12.76 trillion as of May due to loans for the state’s pandemic response.

At the secondary market on Friday, the 91- 182- and 364-day T-bills were quoted at 1.4464%, 1.8098%, and 2.2203%, respectively, based on the PHP BVAL Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the four-year bond, the closest benchmark to the remaining life of the reissued seven-year papers to be auctioned off on Tuesday, fetched a yield of 5.3559%.

Last week, the BTr partially awarded its offer of T-bills despite tenders reaching P42.88 billion, nearly triple the P15 billion on offer.

Broken down, the government fully awarded the 91-day T-bills, raising P5 billion as programmed as tenders for the tenor reached P22.34 billion. The average yield on the three-month debt paper was at 1.46%, 21.5 bps lower than the 1.675% seen previously.

The BTr also raised P5 billion as programmed from the 182-day securities as bids for the tenor reached P14.96 billion. The average rate on the six-month T-bill was at 1.812%, down by 8 bps from the 1.892% fetched at the previous auction.

Lastly, the Treasury rejected all bids for its P5-billion offer of one-year T-bills even as bids reached P5.58 billion. Had the government made a full award, the average rate of the one-year tenor would have been at 2.716%, 67.59 bps higher than the 2.0401% fetched at the secondary market prior to the auction. 

Meanwhile, the last time the government offered the reissued seven-year bonds to be auctioned off on Tuesday was on Jan. 21, 2020. At that auction, the BTr raised just P27.203 billion from the papers out of the P30-billion program despite bids reaching P52.71 billion. The papers fetched an average rate of 4.732% and carry a coupon of 6.25%.

The BTr wants to raise P250 billion from the domestic market in June, or P75 billion through T-bills and P175 billion from T-bonds.

The government borrows from local and external sources to help plug a budget deficit capped at 7.7% of gross domestic product this year. — T.J. Tomas