Treasury bills, bonds likely to fetch higher rates

RATES of government securities (GS) on offer this week are expected rise further as monetary authorities in the US and the Philippines remain hawkish and amid the peso’s continued decline.

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 P35 billion in reissued 3.5-year Treasury bonds (T-bonds) with a remaining life of three years and five months.

Traders expect yields to move higher at this week’s T-bill and T-bond auctions amid the hawkish stances of the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP).

“We expect the upward trend in yields to continue given that the Fed’s hawkish stance and its effect on the peso may push the BSP to front-load rate hikes,” the first trader said. “T-bills will probably get higher bids again and the BTr may opt to reject if that is the case.”

The first trader expects T-bill rates to rise by 10-20 basis points (bps) from the last awarded yields and sees the reissued 3.5-year bond to be quoted at 5.1% to 5.3%.

“Expect yields of T-bills to remain high until there are clear signs that inflation has peaked already. For the 3.5-year issuance, yields are expected to be in the 5.3% to 5.45% range,” the second trader said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said yields on government securities on offer this week could rise further amid the peso’s continued depreciation, which could lead to more aggressive hikes from the BSP, hawkish signals from the Fed, and following the government’s retail Treasury bond (RTB) offering that helped mop up excess liquidity in the market.

Fed Chair Jerome H. Powell said at the Fed’s Jackson Hole symposium on Aug. 26 that the US central bank will hike interest rates as needed and keep them high for some time to combat rising inflation.

The Fed next meets to discuss policy on Sept. 20-21. It has raised rates by 225 bps so far since March, including back-to-back 75-bp hikes in June and July.

The US central bank chief’s hawkish speech caused the dollar to scale new heights in the past week, causing other currencies to weaken, including the Philippine peso.

The peso on Friday slumped to a new record low of P56.77 per dollar, down by 35 centavos from its P56.42 finish on Thursday, data from the Bankers Association of the Philippines showed.

Year to date, the peso has weakened by P5.77 or 11.31% from the P51 close on Dec. 31, 2021.

BSP Governor Felipe M. Medalla last week said the Fed’s next policy move will be a “big factor” to consider for the Monetary Board at their Sept. 22 meeting.

Mr. Medalla earlier said the BSP may need to respond if the Fed remains hawkish due to its spillover effects on the market that could affect inflation.

The BSP has increased borrowing costs by 175 bps since May in a bid to keep rising prices in check.

The central bank sees inflation averaging 5.4% this year, beyond its 2-4% target. Headline inflation hit a near four-year high of 6.4% in July, bringing the seven-month average to 4.7%.

A BusinessWorld poll of 13 analysts yielded a median estimate of 6.4% for August inflation, well within the BSP’s 5.9-6.7% forecast for the month and unchanged from July pace.

Meanwhile, the BTr raised a total of P420.448 billion from the 5.5-year retail bonds it offered from Aug. 23 to Sept. 2, with P108.517 billion coming from the bond exchange program. The RTBs carry a coupon of 5.75% and will be issued on Sept. 7.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills were quoted at 2.3830%, 3.3304%, and 3.8911%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the three-year tenor was quoted at 5.0753% while the four-year bond fetched a yield of 5.3769%.

At last week’s T-bills auction, the Treasury did not award the papers even as bids reached P17.289 billion, above its P15-billion offer.

Broken down, the Treasury turned down all bids for the 90-day T-bill even as total tenders reached P6.103 billion, above the P5-billion plan. Had the Treasury made a full award, the rate of the three-month debt papers would have surged by 61.5 bps to 2.685%.

The BTr also refused to award any 182-day securities even as total bids came in at P8.252 billion, higher than the programmed P5 billion. The average rate of the six-month T-bill would have gone up by 22.5 bps to 3.561% had the government made a full award.

Lastly, the Treasury rejected all tenders for the 364-day debt paper as demand stood at only P2.934 billion, below the P5-billion offer. Had the Treasury accepted these bids, the average yield on the one-year instrument would have jumped by 61.7 bps to 4.399%.

Meanwhile, the reissued 3.5-year papers to be offered on Tuesday were last auctioned off on Aug. 2, where the BTr made a full award of the fresh papers worth P35 billion at a coupon rate of 5.25%, with the average rate standing at 5.153%.

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