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Treasury bills, bonds seen to fetch higher rates


RATES of government securities (GS) on offer this week could rise on expectations of aggressive tightening by the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) at their meetings this week.

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 reissued seven-year Treasury bonds (T-bonds) with a remaining life of six years and eight months.

A trader expects T-bill and T-bond yields to move higher at this week’s auctions ahead of the two central bank meetings, with the Fed seen to hike by 75 basis points (bps) and the BSP likely to raise rates by 50 bps.

The trader expects T-bill rates to rise by 10-20 bps from last week’s awarded yields and sees the seven-year paper to be quoted at 6.5% to 6.75%.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said aggressive moves from the Fed and the BSP could cause T-bill and T-bond rates to rise.

“The markets anticipate a large Fed rate hike of about 0.75-1% after the higher-than-expected US CPI (consumer price index) that was still elevated at 8.3% in August,” Mr. Ricafort said in a Viber message.

“The new record peso exchange rate could also lead to more aggressive local policy rate hikes to help stabilize the peso as well as overall inflation,” he added.

Mr. Ricafort said T-bill rates may rise by 11-17 bps, while the yield on the T-bonds may jump by 11-19 bps from the previous award to track secondary market levels.

The US consumer price index rose in August amid rising rent and healthcare costs, strengthening the case for another aggressive Fed rate hike this week.

Consumer inflation edged up by 0.1% to 8.3% last month after being unchanged in July. In the 12 months through August, the CPI increased to 8.3%.

Fed Chair Jerome H. Powell earlier said the central bank was “strongly committed” to fighting inflation. The Fed is meeting to review policy on Sept. 20-21 and has raised rates by 225 bps since March, including two 75-bp moves in June and July.

Meanwhile, the BSP will hold its policy meeting on Sept. 22. It has hiked borrowing costs by 175 bps since May to rein in rising prices.

A BusinessWorld poll last week showed 14 out of 15 analysts expect the BSP to fire off another rate hike on Thursday. Eleven see a 50-bp increase, while two expect a moderate hike worth 25 bps. Meanwhile, one is betting on a big 75-bp move.

BSP Governor Felipe M. Medalla said last month the central bank has room to hike borrowing costs further as inflation remains stubbornly high, with the Fed’s aggressive tightening also posing an additional risk to prices due to its effect on the peso.

Headline inflation eased to 6.3% in August from a near four-year high of 6.4% in July. This brought the eight-month average to 4.9%, higher than the central bank’s 2-4% target but still below its 5.4% forecast for the year.

The peso closed at an all-time low P57.43 per dollar on Friday, losing 27 centavos from its P57.16 finish on Thursday, Bankers Association of the Philippines data showed.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills were quoted at 2.5669%, 3.4690%, and 3.9147%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website. 

Meanwhile, the seven-year bond was quoted at 6.4569%.

Last week, the Treasury partially awarded its T-bill offer, only accepting bids for the six-month debt, even as total demand reached P19.481 billion, above its P15-billion offer.

The Treasury borrowed P5 billion as planned via the 182-day securities, with bids reaching P9.975 billion. The average rate of the tenor went up by 14.9 bps to 3.634% and accepted rates ranged from 3.498% to 3.8%.

Meanwhile, the government rejected all bids for 91-day T-bills, with tenders for the tenor at just P4.65 billion, below the P5-billion program. Had they been awarded, the average rate of the three-month paper would have gone up by 103.1 bps to 3.349% from the 2.318% fetched last week.

The BTr also refused to award 364-day debt papers, with demand only reaching P4.856 billion versus the P5 billion on the auction block. Had the government accepted all bids, the debt paper’s average rate would have climbed by 61 bps to 4.392% from 3.782% fetched for the tenor on Aug. 22, which was the last successful award.

Meanwhile, the reissued seven-year bonds to be offered on Tuesday were last auctioned off on June 28, where the BTr rejected all bids for the papers amid higher rates.

The last successful award for the bond series was on June 14, with the Treasury raising just P19.551 billion from the papers, less than the programmed P35 billion, even as the offering attracted P62.69 billion in bids.

The papers were awarded an average rate of 6.74% at that auction, higher by 24 bps versus the 6.5% coupon fetched for the bonds when they were offered for the first time on May 17.

The BTr 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. — D.G.C. Robles

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