T-bill, bond rates seen to rise amid demand for higher yields

RATES of Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week could rise as investors could continue to demand yields closer to the Bangko Sentral ng Pilipinas’ (BSP) benchmark rate.

The Bureau of the Treasury (BTr) will auction off PHP 15 billion in T-bills on Monday, made up of P5 billion each in 91-, 182-, and 364-day papers.

On Tuesday, it will offer PHP 25 billion in fresh seven-year T-bonds.

“Investors still would want higher yields given inflation and [the current] policy rate,” a trader said in a Viber message.

Headline inflation slowed to 7.6% in March from 8.6% in February, bringing the first-quarter average to 8.3%, still well above the central bank’s full-year forecast of 6% and the 2-4% target.

The Philippine Statistics Authority will release April inflation data on May 5.

Meanwhile, the Monetary Board has raised borrowing costs by 425 basis points (bps) since May last year, bringing its benchmark rate to 6.25%, the highest since 2007.

The BSP last raised rates by 25 bps last month. Its next meeting is scheduled on May 18.

The trader sees T-bills rising by five to 10 bps while expecting T-bonds to yield within the 6% to 6.125% range.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that T-bills and T-bonds could follow the rise in rates seen at the secondary market, with T-bills rising by at least 15 bps.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills went up by 21.06 bps, 15.85 bps, and 14.77 bps week on week to end at 5.6480%, 5.9190%, and 6.1475%, respectively, based on the PHP BVAL (Bloomberg Valuation Service) Reference Rates data published on the Philippine Dealing System’s website.

“The upcoming seven-year Treasury bond auction yield could be similar to the comparable seven-year PHP BVAL yield at 6.01% as of April 20, 2023,” Mr. Ricafort said.

The seven-year papers stood at 6.0087% on Friday at the secondary market, dropping by 1.23 bps week on week.

Mr. Ricafort said this was due to a widely expected 25-bp rate hike by the US Federal Reserve at its May 2-3 meeting versus a possible pause by the BSP.

The Fed has hiked borrowing costs by a total of 475 bps since March 2022, bringing its key rate to a range between 4.75% and 5%

Meanwhile, BSP Governor Felipe M. Medalla said in an economic briefing last week that the Monetary Board may consider pausing its tightening cycle at its next meeting.

“We’re probably near the end [of our tightening cycle]. We’re probably [considering] pausing at the next meeting because the [month-on-month] inflation prints are very good. If April turns out to be another very low inflation month, so that’s three good points in a row, then we are in a position to pause,” Mr. Medalla said.

Last week, the Treasury raised just PHP 9.175 billion from its offer of T-bills, below the PHP 15-billion program, even as total bids reached PHP 19.825 billion.

Broken down, the Treasury borrowed just PHP 1.5 billion from the 91-day T-bills, well below the PHP 5-billion plan, despite tenders for the tenor reaching PHP 5.2 billion. The average rate of the three-month paper rose by 23.60 bps to 5.55% from the previous week’s auction, with the Treasury only accepting bids with this yield.

The BTr likewise raised only PHP 3.45 billion via the 182-day debt papers, lower than the PHP 5-billion program, even with bids at PHP 7.05 billion. The average rate of the six-month T-bill went up by 11.20 bps to 5.812%. Accepted yields were from 5.788% to 5.85%.

The government also made a partial PHP 4.225-billion award of the 364-day securities, which is below the PHP 5-billion plan, even as demand for the tenor stood at PHP 7.575 billion. The one-year paper was awarded at an average rate of 6.073%, rising by 8.20 bps from the previous week, with accepted rates ranging from 5.99% to 6.128%.

The Treasury wants to raise PHP 160 billion from the domestic market this month, or PHP 60 billion via T-bills and PHP 100 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 6.1% of gross domestic product this year. — By Aaron Michael C. Sy