T-bills, bonds may fetch higher rates on BSP’s tightening cycle

RATES of Treasury bills and bonds to be offered this week are expected to rise. — BW FILE PHOTO

RATES of government securities on offer this week are expected to rise as the Bangko Sentral ng Pilipinas (BSP) is expected to continue hiking borrowing costs in the coming months.

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 benchmark 25-year Treasury bonds (T-bonds) with a remaining life of 13 years and four months.

Traders expect T-bill yields to move higher at this week’s auction.

“Bias is still skewed to higher yields by 10-15 basis points (bps) more due to waned demand for the short-end notes on the back of higher monetary policy rates in the months to come,” the first trader said.

The second trader said T-bill rates will likely be steady as no major local economic data are expected to be released this week.

“The market will likely try to bid close to where BTr awarded last week’s auction,” the second trader added.

Meanwhile, the first trader said the T-bonds on offer on Tuesday could fetch yields ranging from 6.9% to 7.15%

“This auction has all the potential to be strong, just like the previous bond auctions. Investors continue to reach for duration due to relatively higher yields being offered,” the first trader said.

The second trader expects the reissued 25-year papers to be quoted at 7% to 7.25%.

“We saw some strong rally after last week’s successful auction. Expect the momentum to continue as more players need to deploy funds for yield pickup,” the second trader added.

A third trader likewise said the bonds on offer this week could fetch yields at the 7% levels, forecasting a range of 6.95-7.20%.

“Although BVAL (PHP Bloomberg Valuation Service Reference Rates) is flat from about 10 years and beyond, the market will ask for premium considering this is longer than 10 years, which I feel is the sweet spot for duration now,” the third trader said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said yields on the debt papers to be auctioned off this week could rise, particularly those for the short-term tenors, “as signaled by the latest BSP 28-day securities auction results.”

Tte BSP made a full P150-billion award of the 28-day securities it offered on Friday, with bids reaching P229.37 billion. The average rate for the tenor was at 3.45%, with accepted rates ranging from 3.2% to 3.5168%.

The BSP Monetary Board on July 14 raised benchmark interest rates by an all-time high 75 bps in an off-cycle move and left the door open for further tightening amid growing risks to inflation.

BSP Governor Felipe M. Medalla said the Monetary Board’s “significant” hike was due to signs of “sustained and broadening price pressures” as well as spillover effects from aggressive tightening in other countries, such as the United States, amid global inflation concerns.

Mr. Medalla also said he would not rule out another interest rate increase in the Monetary Board’s policy review next month, although the need for a 50-bp hike at that meeting is “much less now” following the surprise move.

The central bank has become more aggressive as headline inflation reached 6.1% in June, the fastest in nearly four years. This brought the first-half average to 4.4%, above the central bank’s 2-4% goal but still lower than its 5% forecast for the year.

Meanwhile, the government last week raised P35 billion as planned from its offer of reissued 10-year securities that have a remaining life of nine years and 11 months. Total bids reached P123.32 billion or more than thrice the amount on the auction block.

Rates awarded ranged from 6.8% to 6.89%, bringing the average yield for the bonds on offer to 6.865%, down by 28 bps from the 7.145% average and by 38.50 bps from the 7.25% coupon fetched for the series when it was first offered on June 21.

The robust demand prompted the BTr to offer P20 billion of the same bonds via its tap facility on Tuesday afternoon, which was also fully awarded. Bids for that offer reached P92.21 billion.

The result of the 10-year bond auction also caused secondary market yields at the long end of the curve to climb week on week, PHP BVAL Reference Rates published on the Philippine Dealing System’s website showed.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills were quoted at 2.1364%, 2.7365%, and 3.137%, respectively, based on the PHP BVAL Reference Rates.

Meanwhile, the 25-year bond fetched a yield of 6.884%. The 10-year bond, the closest tenor to the remaining life of the papers to be offered on Tuesday, fetched a yield of 6.8079%.

Last week, the BTr raised just P12.9 billion from its auction of T-bills, lower than the P15-billion program, even with bids reaching P33.52 billion or more than twice the planned amount.

Broken down, the Treasury made a full P5-billion award of 91-day securities as the tenor attracted P16.62 billion in bids. The average rate of the tenor went up by 44.7 bps to 2.323%. Accepted rates ranged from 1.85% to 2.75%.

The government also raised P5 billion as planned from the 364-day debt papers, with bids reaching P8.02 billion. The average rate of the one-year tenor climbed by 27.7 bps to 3.258%, with the yields on the awarded bids within the 3% to 3.423​​% band.

Meanwhile, the BTr borrowed just P2.9 billion from the 182-day debt papers out of the P5-billion program, even with total tenders reaching P8.89 billion. The tenor’s average rate went up by 17.6 bps to 3.083%, with the government accepting offers ranging from 2.99% to 3.148%.

On the other hand, the benchmark 25-year papers to be offered on Tuesday were issued on Dec. 16, 2010 following a bond exchange program by the government, the first time a swap was offered for the tenor. The issuance reached P166.22 billion, surpassing the initial P30-billion program, and was awarded at a coupon rate of 8.125%.

The Treasury 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. — D.G.C. Robles