Rates of T-bills, bonds may rise further

RATES of Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week could continue to rise as investors want yields at par with benchmark borrowing costs and amid still-elevated inflation.

The Bureau of the Treasury (BTr) will auction off PHP 15 billion in T-bills on Tuesday, made up of PHP 5 billion each in 91-, 182-, and 364-day papers.

On Wednesday, it will offer PHP 25 billion in reissued 10-year T-bonds that have a remaining life of five years and eight months.

T-bill rates could go up by 10 basis points (bps), while T-bond yields could settle within the 5.85% to 6% range, a trader said in a Viber message.

The trader said investors want higher returns as the Bangko Sentral ng Pilipinas’ (BSP) policy rate remains above T-bill and T-bond yields, and as inflation is expected to remain above the 2-4% target.

The Philippine central bank has increased borrowing costs by 425 bps since May 2022 to help bring down elevated inflation. Its policy rate is now at 6.25% — the highest in nearly 16 years.

BSP Governor Felipe M. Medalla last month said if inflation eased further in April, the Monetary Board could consider pausing its tightening cycle at their May 18 review.

The BSP last week said April inflation likely settled within the 6.3-7.1% range, slower than the 7.6% in March.

If realized, the consumer price index would surpass the BSP’s 2-4% target for the 13^th consecutive month.

Still, the lower end of the forecast range would match the 6.3% in August 2022 and would be the slowest print in 10 months or since June last year, when it stood at 6.1%.

April inflation data will be released on Friday.

“The upcoming Treasury bill auction yields could again be higher, in view of the latest and continued week-on-week increase in the comparable short-term PHP BVAL (Bloomberg Valuation Service) yields, as they moved closer to the local policy rate at 6.25%,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said in a Viber message.

“The upcoming six-year Treasury bond auction yield could be similar to the comparable six-year PHP BVAL yield at 5.97% (little changed week on week),” Mr. Ricafort added.

At the secondary market on Friday, the 91- and 182-T-bills went up by 17.14 bps and 9.30 bps week on week to end at ​​5.8194% and 6.012%, respectively, based on the PHP BVAL Reference Rates data published on the Philippine Dealing System’s website.

Meanwhile, the 364-day T-bill inched down by 0.56 bp week on week to end at 6.1419%.

The five-year bond, the benchmark tenor closest to the remaining life of the T-bonds on offer on Wednesday, was quoted at 5.9571% at the secondary market on Friday.

Mr. Ricafort added that T-bill and T-bond rates may rise as markets expect the US Federal Reserve to raise rates by another 25 bps at their May 2-3 policy meeting.

The Fed in March hiked borrowing costs by 25 bps to the 4.75% to 5% range.

Since March 2022, the US central bank has increased rates by a total of 475 bps.

Last week, the Treasury raised just PHP 10.572 billion from its offer of T-bills, lower than the PHP 15-billion program, even with total bids reaching PHP 17.553 billion.

Broken down, the Treasury borrowed just PHP 2.607 billion from the 91-day T-bills, with tenders reaching only PHP 4.417 billion or below the PHP 5-billion plan. The average rate of the three-month paper rose by 31.90 bps to 5.869%, with accepted yields ranging from 5.745% to 5.95%.

The BTr likewise raised only PHP 3.236 billion via the 182-day debt papers versus the PHP 5-billion program, despite bids reaching PHP 6.146 billion. The average rate of the six-month T-bill went up by 18.10 bps to 5.993%. Accepted yields were from 5.89% to 6.15%.

Lastly, the government made a partial PHP 4.729-billion award of the 364-day securities, short of the PHP 5-billion plan, even as demand for the tenor stood at PHP 6.99 billion. The one-year paper was awarded at an average rate of 6.209%, rising by 13.60 bps, with accepted rates ranging from 6.10% to 6.25%.

On the other hand, the reissued 10-year T-bonds to be auctioned off on Wednesday were last offered on Aug. 9 last year, when the government raised PHP 35 billion as planned. The bonds fetched an average rate of 5.791%, with accepted rates at 5.7% to 5.874%.

The Treasury wants to raise PHP 175 billion from the domestic market this month, or PHP 75 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. — AMCS