July 17, 2022

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T-bills, bonds may fetch higher rates after central bank’s move

RATES of government securities on offer this week are expected to rise following the Bangko Sentral ng Pilipinas’ (BSP) surprise hike on Thursday.

The Bureau of the Treasury (BTr) will offer P15 billion in Treasury bills (T-bills) on Monday, made up of P5 billion each in 91-, 182-, and 364-day debt papers.

On Tuesday, the BTr will auction off P35 billion in 10-year Treasury bonds (T-bonds) with a remaining life of nine years and 11 months.

“[This] week’s reissue of the FXTN 10-68 will be well received by the market bouncing off a good participation in last Tuesday’s auction,” the first trader said, noting the 10-year bonds could fetch yields ranging from 6.75% to 7%.

“We also saw that even with [Thursday’s] 75-basis-point (bp) hike, yields did not move higher proportionately, indicating that current yields present enough buffer from the tightening and some future rate hikes. Investors are also anticipating a possible peaking in CPI (consumer price index) for the Philippines given that we have seen oil prices relax the last few weeks,” the first trader added.

The second trader said the T-bills on offer on Monday could see their rates rise by 10-20 bps from those quoted at last week’s auction, while the 10-year papers may fetch yields within the 6.7-6.875% band to track secondary market levels.

“The seven-year auction last week was so strong that it improved sentiment for bonds. Moreover, prices of key commodities already bounced off their highs, so it also enhanced some demand for local bonds. And with all these monetary tightening measures, price pressures will be cushioned and should be a bond friendly catalyst on the foresight,” the second trader added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said yields on the debt papers to be auctioned off this week could rise after the Philippine central bank’s decision to raise rates in an off-cycle review.

The BSP unexpectedly raised its benchmark interest rates by an all-time high 75 bps on Thursday and left the door open for further tightening amid growing risks to inflation, which already reached a near four-year high in June.

BSP Governor Felipe M. Medalla said the Monetary Board raised its key rate to 3.25%, effective immediately. Rates on the overnight deposit and lending facilities were also hiked by 75 bps to 2.75% and 3.75%, respectively.

Mr. Medalla said the “significant” hike was due to signs of “sustained and broadening price pressures” as well as spillover effects from aggressive tightening in other countries, such as the United States, amid global inflation concerns. 

The move was made ahead of the Monetary Board’s Aug. 18 review and follows the back-to-back 25-bp hikes done in May and June, bringing total increases for the year to 125 bps.

On Friday, Mr. Medalla said in an interview with Bloomberg Television that he would not rule out another interest rate increase in the August review, although the need for a 50-bp hike at that meeting is “much less now” following the 75-bp increase it fired off on Thursday.

Headline inflation rose by 6.1% year on year in June, the fastest in nearly four years and exceeding the central bank’s 2-4% target band for a third straight month. The average inflation rate in the first six months is 4.4%, still below the BSP’s full-year forecast of 5%.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills were quoted at 1.9413%, 2.6167%, and 2.8709%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the 10-year bond fetched a yield of 6.7941%.

Last week, the BTr raised just P13.16 billion from its auction of T-bills, lower than the P15-billion program, even with bids reaching P36.72 billion or more than twice the planned amount.

Broken down, the Treasury made a full P5-billion award of 91-day securities as the tenor attracted P24.56 billion in bids. The average rate of the tenor went down by 3.2 bps to 1.876%. Accepted rates ranged from 1.825% to 1.894%.

Meanwhile, the BTr raised just P4.1 billion from the 182-day debt papers out of the P5-billion program, even with total tenders reaching P7.05 billion. The tenor’s average rate went up by 29.9 bps to 2.907%, with the government accepting offers ranging from 2.825% to 2.95%.

Lastly, the government awarded only P4.06 billion in 364-day debt papers out of the P5-billion plan, with bids reaching P5.11 billion. The average rate of the one-year tenor climbed by 17 bps to 2.981%, with the yields on the awarded bids within the 2.8% to 3.143​​% band.

Meanwhile, the reissued 10-year papers to be offered on Tuesday were last auctioned off on June 21, where the BTr made a partial award of the fresh papers worth P34.892 billion versus the P35-billion program.

The bonds were awarded at a coupon rate of 7.25%, 30.59 bps higher than the 6.9441% quoted for the 10-year tenor at the secondary market before the auction. Rates bid by participants ranged from 6.95% to 7.37% for an average of 7.145%.

The Treasury wants to raise P200 billion from the domestic market this month, or P60 billion through T-bills and P140 billion via T-bonds.

The government borrows from local and external sources to help fund a budget deficit capped at 7.6% of gross domestic product this year. — Diego Gabriel C. Robles