Rates of Treasury bills, bonds to climb

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Government Securities (GS) RATEs on offer this week are expected to rise as the Central Bank of the Philippines is seen as aggressive at its upcoming policy meeting as inflation remains elevated.

The Bureau of the Treasury (BTr) will offer 15 billion pesos in treasury bills (treasury bills) on Monday, consisting of 5 billion pesos each in 91-, 182- and 364-day debt securities.

On Tuesday, the BTr will auction 35 billion pesos in 10-year treasury bills (T-bonds) reissued with a remaining life of six years and Iffive months.

Traders expect yields to rise at treasury bill and treasury bond auctions this week.

The first trader sees treasury bill rates moving sideways or more than 10 basis points (bps) and 10-year rollovers reaching yields ranging from 6.25% to 5.75%.

The IfThe top trader said faster inflation in July could give the Bangko Sentral ng Pilipinas (BSP) a reason to raise rates by 50 basis points instead of just 25 basis points.

The second trader sees treasury bill rates rise 10-15 basis points from those seen in the previous auction and treasury bill yields range between 5.75% and 5.90%.

“With the release of inflation data, which printed faster than expected, BSP is likely to continue to be aggressive in its tightening methods, putting pressure on the short end of the GS curve,” said the second trader.

The third trader expects the reissued 10-year papers to be valued between 5.60% and 5.875%, in line with secondary market levels.

“As with the auctions in previous weeks, we should see continued demand and we expect bidding to be more than 2x the supply. Even with a CPI (consumer price index) at 6.4%, I think the market is comfortable with current levels as the BSP has signaled that they are ready to take whatever action is necessary on the CPI. This, along with their statement of a safe 25 or 50 basis point rise [next week]will keep the levels at bay,” the third trader said.

Meanwhile, Rizal Commercial Banking Corp.’s chief economist, Michael L. Ricafort, said government securities yields on offer this week could ease to track modest weekly declines in short-term rates and the larger declines of 20 to 30 basis points in the long-term ones in the secondary market.

Headline inflation accelerated to 6.4% year-on-year in July, its fastest pace since October 2018, mainly due to soaring food prices and rising transport costs.

The reading was faster than the 6.1% in June and 3.7% a year ago. It also settled into the upper end of the BSP forecast range of 5.6-6.4% for the month.

For the IfInflation in the first seven months averaged 4.7%, below the 4% seen in the same period a year ago and the central bank’s inflation forecast of 5%, but above its target of 2 to 4% for the year.

BSP Governor Felipe M. Medalla said last week that the central bank still had room to raise borrowing costs without sacrificingIfaccelerate the recovery of the economy while real interest rates remain negative.

He said their expected 25 or 50 basis point hike at their Aug. 18 meeting was still supportive of growth. Mr Medalla added that it is too early to tell whether the August increase will be the last for now amid lingering uncertainties at home and abroad.

Last month, the Monetary Board raised benchmark interest rates by 75 basis points in an off-cycle move as it sought to contain inflationary pressures exacerbated by the weaker peso against the dollar in the context of the aggressive attitude of the Fed. It has raised rates by 125 basis points so far since May.

In the secondary market on Friday, the 91-day, 182-day and 364-day Treasury bills were quoted at 2.123%, 2.871% and 3.3693%, respectively, based on the PHP Bloomberg valuation benchmark rates published on the Philippine Dealing System. website.

Meanwhile, the 10-year bond reached a yield of 6.1379%. The seven-year term, the closest to the remaining life of the items that will be offered on Tuesday, was quoted at 5.8179%.

Last week, the Treasury raised 15 billion pesos as expected through its treasury bond auction, with bids reaching 43.31 billion pesos.

Broken down, the BTr allotted a total of 5 billion pesos in 91-day securities, with the duration attracting 24.07 billion pesos in bids. The tenor’s average rate fell 18.3 bps to 2.09%. Accepted rates ranged from 2.08% to 2.1%.

The government also borrowed 5 billion pesos as planned through the 182-day securities, with tenders reaching 12.94 billion pesos. The average maturity rate increased by 4.6 basis points to 3.188%. The accepted rates ranged from 3.125% to 3.225%.

Finally, the Treasury raised 5 billion pesos from 364-day debt securities as planned, with demand for the term reaching 6.29 billion pesos. The average maturity rate rose 12.4 basis points to 3.48% as the government accepted offers ranging from 3.35% to 3.7%.

Meanwhile, the 10-year reissue papers that will be offered on Tuesday were last auctioned on February 18, 2020, where the BTr awarded the entire reissue papers worth 30 billion pesos to a average rate of 4.409%.

The BTr wants to raise 215 billion pesos domestically this month, or 75 billion pesos through treasury bills and 140 billion pesos through treasury bonds.

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

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