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Rates of Treasury bills, bonds expected to climb

RATES of government securities on offer this week may climb ahead of the anticipated tightening by the Bangko Sentral ng Pilipinas (BSP) at its policy meeting on Thursday.

The Bureau of the Treasury (BTr) will auction off 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 also offer P35 billion in reissued 25-year Treasury bonds (T-bonds) with a remaining life of 11 years and 11 months.

A trader said the rates of T-bills and T-bonds on offer this week are likely to climb.

“For T-bills, we expect them to fetch yields higher by 5-10 basis points (bps). For the reissuance of the 25-year bond, we expect yields to range between 8% and 8.25%,” the trader said in a phone call.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message that yields could go up as the market is expecting another rate hike by the BSP this week.

“Treasury bill and Treasury bond auction yields could continue to go up for the coming week after PHP BVAL (Bloomberg Valuation Service) yields mostly went up… The markets would anticipate the widely expected 75-bp local policy rate on Nov. 17, as well as signals that local policy rate hikes to match any further Federal Reserve rate hikes in the coming months that could be potentially tempered by the easing trend in the US consumer price index,” Mr. Ricafort said.

Analysts from UnionBank Economics Research said in a market report that expectations of higher benchmark interest rates could cause bid rates at this week’s auctions to climb.

The Philippine central bank will likely hike rates by 75 bps on Thursday as it seeks to match the Fed’s latest move to stabilize prices and support the currency, BSP Governor Felipe M. Medalla said last week.

The BSP has raised borrowing costs by 225 bps since May, bringing the policy rate to 4.25%, as it seeks to rein in inflation.

Philippine headline inflation surged to 7.7% in October, its quickest pace in almost 14 years, from 6.9% in September and 4% in October 2021.

For the first 10 months, inflation averaged 5.4%, still lower than the BSP’s 5.6% full-year forecast but higher than its 2-4% target.

Meanwhile, the Fed has hiked by 375 bps since March, bringing the federal funds rate to a range between 3.75% and 4%.

Markets expect the Fed to begin considering smaller rate hikes by its Dec. 13-14 meeting after October US consumer inflation increased by 7.7% annually, slower than the 8.2% logged in September.

At the secondary market on Friday, the 91- 182- and 364-day T-bills were quoted at 4.1094%, 4.6397%, and 5.0454%, respectively, based on the PHP BVAL Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the 10-year bond, the tenor closest to the remaining life of the papers to be auctioned off on Tuesday, fetched a yield of 7.6479% and the 25-year bond was quoted at 7.8828%.

The government partially awarded the T-bills it auctioned off last week, even as total tenders reached P21.507 billion, higher than the P15-billion offer.

Broken down, the BTr borrowed just P2.1 billion through the 91-day T-bills, even with total bids reaching P9.35 billion, above the P5-billion program. The average rate of the tenor rose by 203.2 bps to 4.35% from the 2.318% seen on Sept. 5, the last successful award, with the government only accepting offers with a 4.35% yield.

The Treasury also raised only P2.5 billion via the 182-day securities despite tenders reaching P7.457 billion versus the P5-billion plan. The average rate of the six-month T-bill went up by 84.2 bps to 4.8% from the 3.958% quoted for the last successful award on Sept. 26, with accepted rates ranging from 4.7-4.85%.

Lastly, the BTr awarded just P2.1 billion through the 364-day debt papers as demand for the tenor reached P4.7 billion, slightly lower than the P5 billion on the auction block. The average rate of the tenor increased by 121.8 bps to 5% from the 3.782% seen for the last successful award on Aug. 22. Accepted rates were all at 5%.

Meanwhile, the reissued 25-year bonds to be offered this week were first offered on Nov. 3, 2009, where the government raised P6.5 billion as planned. The bonds fetched a coupon rate of 9.25%, with the average at 9.08%.

The Treasury plans to raise P215 billion from the domestic market in November, or P140 billion through T-bills and P75 billion from T-bonds.

The government borrows from local and external sources to help plug a budget deficit capped at 7.6% of gross domestic product this year. — L.M.J.C. Jocson

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