T-bill rates may go up on hawkish BSP bets

Rates of Treasury bills (T-bills) could climb this week on expectations that the Bangko Sentral ng Pilipinas (BSP) would raise borrowing costs before its November policy meeting.

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.

The government will not auction off Treasury bonds (T-bonds) this week to give way to its ongoing offering of retail dollar bonds (RDBs), which is set to end on Oct. 6. The RDBs will be issued on Oct. 11.

The government raised an initial USD 611.2 million (PHP 34.8 billion) from the onshore RDBs at the rate-setting auction last week, higher than the minimum issue size of USD 200 million. The five-and-a-half-year bonds fetched a coupon rate of 5.75% with rates ranging from 5% to 5.75%, bringing the average to 5.509%.

T-bill yields may track the increases seen at the secondary market last week amid hawkish BSP bets, 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 9.47 basis points (bps), 3.84 bps, and 9.81 bps week on week to end at 5.7049%, 5.9828%, and 6.1941%, respectively, based on PHP BVAL Reference Rates data published on the Philippine Dealing System’s website.

BSP Governor Eli M. Remolona, Jr. told Bloomberg last week that he is open to an off-cycle rate hike before their Nov. 16 meeting and ruled out cuts in the near term.

The central bank last month kept its policy rate unchanged at 6.25% for a fourth straight meeting. However, officials signaled they might resume tightening at their next review if inflation pressures persist.

Yields at the secondary market rose as the BSP said headline inflation could have picked up in September, Mr. Ricafort added.

Philippine annual inflation in September is expected to settle within the range of 5.3% to 6.1%, the central bank said on Friday.

Higher prices of fuel, electricity, and key agricultural commodities, as well as peso depreciation are the primary sources of upward price pressures in September, the BSP said in a statement.

Meanwhile, a BusinessWorld poll of 17 analysts yielded a median estimate of 5.4% for September inflation, near the low end of the BSP’s forecast.

If realized, the consumer price index (CPI) would be faster than the 5.3% seen in August, but lower than the 6.9% in the same month last year.

This would also be the 18^th straight month that inflation would breach the central bank’s 2-4% target for the year.

The Philippine Statistics Authority will release September CPI data on Oct. 5, Thursday.

US inflation data released on Friday could also affect T-bill yields, a trader said in an e-mail.

Data showed the US personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased 3.9% on an annual basis for August, the first time in over two years it had fallen below 4%, Reuters reported.

The Fed tracks the PCE price indexes for its 2% inflation target.

Last week, the BTr raised PHP 15 billion as planned from T-bills as total bids reached PHP 40.202 billion, or more than twice the amount on offer. 

Broken down, the Treasury made a full PHP 5-billion award of the 91-day T-bills as tenders for the tenor reached PHP 10.045 billion. The average rate of the three-month paper went up by 4.3 bps to 5.595%, with accepted rates ranging from 5.5% to 5.624%

The government also raised PHP 5 billion as planned from the 182-day securities as bids for the tenor reached PHP 16.28 billion. The average rate for the six-month T-bill was at 5.968%, up by 2.9 bps from the previous week, with accepted rates at 5.945% to 5.988%.

Lastly, the BTr borrowed the programmed PHP 5 billion via the 364-day debt paper as demand for the tenor stood at PHP 13.877 billion. The average rate of the one-year T-bill rose by 4.6 bps to 6.119%. Accepted yields were from 6.085% to 6.199%.

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. — with Reuters