T-bill, bond rates may climb on BSP hike bets

RATES of the Treasury bills (T-bills) and Treasury bonds (T-bonds) to be offered this week could climb further, with yields on long tenors likely to breach 8% as the Bangko Sentral ng Pilipinas (BSP) chief left the door open to an off-cycle hike to temper inflation risks.

The Bureau of the Treasury (BTr) will auction off up to P38 billion in T-bills on Monday, or P12 billion to P15 billion in 91-day papers, P10 billion to P13 billion in 182-day securities, and P7 billion to P10 billion in 364-day debt.

On Tuesday, the government is targeting to raise up to P50 billion from a dual-tenor T-bond offering, or P20 billion to P30 billion in reissued seven-year bonds with a remaining life of four years and two months, and P10 billion to P20 billion in 10-year notes with a remaining life of nine years and nine months.

T-bill and T-bond yields could track the week-on-week increase in most secondary market rates after the BSP chief said they are considering an off-cycle rate hike, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“Locally, the BSP governor expressed the possibility of an off-cycle hike, but this was already priced in by the market. What’s crucial is [this] week’s 10-year auction as it is expected to breach 8% since we think that the BTr can no longer afford to reject,” a trader said in an e-mail.

The trader said the 10-year bonds could fetch rates from 7.95% to 8.25%.

At the secondary market on Friday, yields on the 91-, 182-, and 364-day T-bills rose by 14.52 basis points (bps), 16.79 bps, and 3.94 bps week on week to close at 5.0563%, 5.4593%, and 5.9534%, respectively, according to the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System website.

For its part, the seven-year bond climbed by 2.84 bps week on week to yield 7.595%, while the four-year paper, the tenor closest to the remaining life of the reissued bonds to be offered this week, saw its rate increase by 4.04 bps to 7.3598%.

The 10-year debt’s yield likewise increased by 13.1 bps week on week to end at 7.7461%.

BSP Governor Eli M. Remolona, Jr. said they are considering more aggressive policy action to help curb spiraling prices as the Middle East conflict continues to stoke inflation.

He said in an interview on One News’ Money Talks with Cathy Yang on Thursday that the Monetary Board is considering a second straight hike, possibly even before their scheduled June 18 meeting, to respond to the “big” and “persistent” supply shock posed by the war so that they would not fall behind the curve.

The BSP on April 23 delivered its first rate increase in over two years, raising benchmark borrowing costs by 25 bps to bring the policy rate to 4.5%.

Inflation has breached the BSP’s 2%-4% target since the war began in late February. In April, rising costs of food and utilities amid elevated oil prices drove the headline print to an over three-year high of 7.2% from 4.1% in March.

Last week, BTr raised only P25.41 billion via the T-bills it auctioned off, below the P30-billion plan, even as total tenders reached P40.68 billion.

Broken down, the Treasury borrowed P13 billion via the 91-day T-bills, higher than the original P10-billion plan, as demand reached P19.87 billion. The three-month paper fetched an average rate of 5.074%, increasing by 22.4 bps from the previous week. Bids accepted had yields ranging from 4.915 to 5.173%.

Meanwhile, the government raised just P8.6 billion via 182-day debt, below the P10-billion offering, even as tenders reached P15.15 billion. The average rate of the six-month T-bill was at 5.894%, surging by 62.4 bps from the last auction. Tenders awarded carried rates from 5.59% to 6%.

For the 364-day securities, the BTr awarded only P3.81 billion, lower than the P10 billion on offer, as the tenor drew just P5.66 billion in demand. The one-year paper fetched an average yield of 6.037%, rising by 31.8 bps week on week. Accepted bids had rates from 5.925% to 6.1%.

Meanwhile, the reissued seven-year bond to be auctioned on Tuesday was last offered on April 28, where the government raised P20 billion as planned at an average rate of 6.741%, higher than the 6.375% coupon rate.

For the 10-year debt, the government last raised just P5.02 billion via the bonds at the same auction held on April 28, below its P20-billion target as the average rate reached 6.857%, well above the 5.925% coupon.

The BTr wants to raise P268 billion from the domestic market this month, or P128 billion via T-bills and P140 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.61 trillion or 5.3% of gross domestic product this year. — Aaron Michael C. Sy