T-bill, bond rates may climb on BSP bets

Rates of Treasury bills (T-bills) and bonds on offer this week could rise on expectations of further tightening from the Bangko Sentral ng Pilipinas (BSP) due to faster-than-expected September inflation.

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

On Tuesday, it will offer PHP 30 billion in reissued 10-year Treasury bonds (T-bonds) with a remaining life of five years and three months.

T-bill and bond yields may track the increases seen at the secondary market on Friday due to the central bank’s hawkish tone after inflation picked up to a three-month high in September, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills went up by 0.7 basis point (bp), 2.78 bps, and 4.97 bps week on week to end at 5.7119%, 6.0106%, and 6.2438%, respectively, based on PHP BVAL Reference Rates data published on the Philippine Dealing System’s website.

The five-year bond also rose by 6.68 bps week on week to end at 6.4113%.

“Further unwinding was seen in the GS (government securities) market as players repositioned amid concerns regarding the BSP’s policy move in November and in early 2024 due to a renewed broadening of price pressures,” a trader said in an e-mail.

The trader sees the rate for the five-year T-bond ranging from 6.5% to 6.7%.

Headline inflation picked up a three-month high of 6.1% in September from 5.3% in August, data released by the Philippine Statistics Authority last week showed.

This was slower than the 6.9% print in September 2022, but matched the high end of the BSP’s 5.3-6.1% forecast for the month.

The September consumer price index (CPI) was also above the 5.4% median estimate in a BusinessWorld poll of 17 analysts and marked the 18^th consecutive month that inflation exceeded the 2-4% target for the year.

For the first nine months, the CPI averaged 6.6%, above the central bank’s 5.8% forecast for the year.

Following the data release, the BSP said it “stands ready to resume monetary policy tightening as necessary to prevent the renewed broadening of price pressures.”

The central bank last month kept its policy rate unchanged at 6.25% for a fourth straight meeting after raising borrowing costs by 425 bps from May 2022 to March 2023.

The Monetary Board will hold its next policy meeting on Nov. 16. BSP Governor Eli M. Remolona, Jr. earlier said he is open to an off-cycle interest rate hike before next month’s review if inflation risks grow.

T-bond rates could also be affected by latest US jobs data, the trader added.

Nonfarm payrolls increased by 336,000 jobs last month, the US Labor department said on Friday, while data for August was revised higher to show 227,000 jobs were added instead of the previously reported 187,000, Reuters reported.

September’s job numbers were almost double the 170,000 forecast of economists polled by Reuters and shocked a market trying to understand how the US Federal Reserve will address a strong economy and its mission to lower rates to its 2% target.

Last week, the BTr raised just PHP 12.916 billion via the T-bills, short of the PHP 15-billion program, even as total bids reached PHP 27.574 billion.

Broken down, the Treasury made a full PHP 5-billion award of the 91-day T-bills as tenders for the tenor reached PHP 10.01 billion. The average rate of the three-month paper rose by 10.3 bps to 5.698%. Accepted rates ranged from 5.68% to 5.725%

The government also raised PHP 5 billion as planned from the 182-day securities as bids for the tenor reached PHP 9.106 billion. The average rate for the six-month T-bill was at 6.023%, up by 5.5 bps from the previous week, with accepted rates at 5.975% to 6.054%.

Meanwhile, the BTr borrowed only PHP 2.916 billion via the 364-day debt papers, below the PHP 5-billion plan, despite demand for the tenor reaching PHP 8.458 billion. The average rate of the one-year T-bill rose by 9.6 bps to 6.215%. Accepted yields were from 6.15% to 6.25%.

On the other hand, the reissued 10-year bonds to be offered on Tuesday were last auctioned off on Aug. 30, where the government raised PHP 30 billion as planned. The papers fetched an average rate of 6.22%.

The Treasury wants to raise PHP 150 billion from the domestic market this month, or PHP 60 billion via T-bills and PHP 90 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 with Reuters