Rates of Treasury bills, bonds to go up on hawkish BSP bets

RATES of Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week could rise on expectations of faster inflation last month, which could lead to a more aggressive move from the central bank.

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

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

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that T-bill and T-bond rates could track the rise in secondary market yields.

“The upcoming Treasury bill yields could be again slightly higher week on week, after the latest weekly increase in the comparable short-term PHP BVAL (Bloomberg Valuation Service) yields after the latest signals of a possible 50-bp (basis point) local policy rate hike on March 23 if inflation goes above 9%,” he said.

A trader said T-bill rates could rise by 10 bps to 15 bps, while the 10-year bond could fetch a yield of 6.5% amid expectations of faster February headline inflation, which could lead to higher benchmark interest rates.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills went up by 11.82 bps, 3.49 bps, and 16.25 bps week on week to end at 4.617%, 5.1764%, and 5.6089%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website.

The 10-year bond also saw its yield increase by 13.18 bps week on week to 6.4496%.

Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla on Friday said the central bank may raise rates by 50 bps at their March 23 meeting if February inflation rises above 9%.

The BSP on February 16 raised benchmark interest rates by 50 bps for a second straight meeting, bringing its policy rate to 6%, the highest in nearly 16 years or since May 2007 when it stood at 7.5%.

It has now hiked borrowing costs by 400 bps since May 2022.

Meanwhile, February inflation likely settled within 8.5% to 9.3%, the BSP said last week. This would follow January’s 8.7% print, which was the quickest since November 2008.

If realized, February would mark the 11^th straight month that inflation would exceed the BSP’s 2-4% target range.

The upper end of the forecast would also be the fastest headline print recorded in more than 14 years or since the 9.7% recorded in October 2008.

The Philippine Statistics Authority will release the February consumer price index report on March 7, Tuesday.

Last week, the BTr raised P10 billion from its offering of T-bills, lower than the PHP 15-billion program, as rates climbed across all tenors.

Broken down, the Treasury did not award any 91-day T-bills as tenders reached only PHP 4.12 billion, below the PHP 5-billion program. Had it been awarded, the average rate of the three-month papers would have climbed by 45.10 bps to 4.864%.

Meanwhile, the government made a full PHP 5-billion award of the 182-day securities as demand for the tenor reached PHP 9.46 billion. The six-month T-bill was quoted at an average rate of 5.177%, rising by 11.70 bps, with accepted rates ranging from 5.093% to 5.3%.

The BTr also borrowed PHP 5 billion as planned from the 364-day debt papers as bids reached PHP 9.07 billion. The average rate of the one-year papers climbed by 12.20 bps to 5.577%. Accepted yields were from 5.565% to 5.6%.

On the other hand, the reissued 10-year T-bonds to be auctioned off on Tuesday were last offered on February 21, where the government raised the programmed PHP 35 billion.

The issuance fetched an average rate of 6.258%, with accepted rates at 6.199% to 6.3%.

The Treasury wants to raise P200 billion from the domestic market this month, or PHP 75 billion via T-bills and PHP 125 billion via T-bonds.

The government borrows from local and external sources to finance its budget deficit, which is capped at 6.1% of gross domestic product this year. — A.M.C. Sy