Treasury bills, bonds to fetch higher rates

RATES of government securities on offer this week are expected to move sideways with a slight upward bias as the market expects the Bangko Sentral ng Pilipinas (BSP) to continue hiking borrowing costs.

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 debt papers.

On Tuesday, the BTr will auction off P35 billion in reissued seven-year Treasury bonds (T-bonds) with a remaining life of six years and 10 months.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said rates of the T-bills on offer this week could end slightly higher and track secondary market yields.

Yields at the secondary market mostly inched up last week due to expectations of further gradual tightening by the BSP due to rising inflation that could also be affected by the peso’s recent decline against the dollar.

The first trader on Friday likewise said the average rate of the reissued seven-year paper could go up as the BSP is expected to continue raising benchmark interest rates. The trader gave a forecast range of 6.8% to 7.125% for the seven-year bond.

Meanwhile, a second bond trader on Friday said rates of the debt papers on offer this week are expected to remain steady on ample demand for longer tenors, noting the result of last week’s auction of fresh 10-year bonds.

“[The] BTr able to almost fill the [P35 billion] on offer at 7.25% shows there is demand for this tenor,” the trader added. “The yields also didn’t move despite the BSP tightening by 25 [basis points (bps)], as has been transmitted by them for weeks prior and with the threat of CPI (consumer price index) running away.”

The trader expects the seven-year bond to fetch rates ranging from 6.75% to 7%.

“The reissue of the seven-year paper on Tuesday may provide further direction. It will be a case of where the market will want to be compensated versus how high the concession award will be for the BTr,” the second trader said.

The BSP on Thursday raised benchmark interest rates by 25 bps for a second straight meeting to cool rising prices and continued to signal gradual normalization, even as it said it is prepared “to take all necessary policy action” to bring inflation within its target over the medium term.

The BSP raised its average inflation forecast for this year to 5% from 4.6% previously, well above its 2-4% target. For 2023, the BSP now sees inflation averaging 4.2% from 3.9% previously and then slow to 3.3%, back within target, in 2024.

Inflation rose to 5.4% in May, the highest in three and a half years, amid the continued rise in food and fuel prices. The implementation of a daily minimum wage hike in 14 regions and a P1 increase in fares for public utility jeepneys in Metro Manila, Central Luzon, Calabarzon and Mimaropa earlier this month will likely add to inflationary pressures.

With the market hoping for a 50-bp increase from the BSP as inflation risks mount, the local currency dropped to its lowest in nearly 17 years on Friday, closing at P54.985 against the dollar, data from the Bankers Association of the Philippines showed. It was the peso’s weakest finish since it closed at P55.08 on Oct. 27, 2005.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills were quoted at 1.6262%, 1.9347%, and 2.4186%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the seven-year bond fetched a rate of 6.6664%.

Last week, the BTr raised just P10.54 billion from its offer of T-bills as rates rose across all tenors, even as bids reached P22.605 billion, above the P15-billion program.

Broken down, the Treasury partially awarded its offer of the 91-day T-bills, raising just P3.07 billion against the P5-billion program, even as tenders reached P11.285 billion. The average rate of the tenor climbed by 18.7 bps to 1.759% from 1.572%.

The BTr likewise awarded only P3.62 billion in 182-day securities versus the P5-billion offer even as bids hit P5.82 billion. The average rate of the six-month tenor went up by 19.8 bps to 2.132% from 1.934%.

Lastly, the government made a partial award of its offer of one-year debt papers, borrowing just P3.85 billion against the P5-billion plan even as tenders hit P5.5 billion. The average rate of the one-year T-bill went up by 12.9 bps to 2.454% from 2.325%.

Meanwhile, the last time the Treasury offered the reissued seven-year bonds to be offered on Tuesday was on May 17, where it raised just P20.1 billion against the P35-billion program. The securities were awarded at a coupon of 6.5% with the average rate at 6.428%.

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

The government borrows from local and external sources to help plug a budget deficit capped at P1.65 trillion this year, equivalent to 7.6% of gross domestic product. — T.J. Tomas