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T-bills, T-bonds may fetch higher rates

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GOVERNMENT SECURITIES on offer this week will likely fetch higher yields as investors await the monetary policy meeting of the Bangko Sentral ng Pilipinas (BSP).

The Bureau of the Treasury is offering today P15 billion worth of Treasury bills (T-bills), broken down into P5 billion and P4 billion in three- and six-month papers, respectively, and another P6 billion in one-year bills.

Tomorrow, the Treasury will also offer P10 billion worth of reissued three-year Treasury bonds (T-bonds) with a remaining life of two years and eight months.

A trader said on Friday that the T-bills auction could end mixed as yields on the shortest tenor may slip.

“For the bills, we expect yields of the 91-day papers [to move] sideways or lower by five basis points from the previous auction,” the trader said in a phone interview, adding that yields on the 182- and 364-day papers will likely move up by around five basis points.

“For the T-bonds, we’re expecting [the yield] to rise by five basis points from the previous auction,” the trader noted.

Meanwhile, another bond trader sees Tuesday’s T-bonds being awarded at a rate between 4.625% and 4.85%.

During last week’s T-bills auction, rates of the three-month papers dropped to 3.485% from 3.597% in the previous auction, while the six-month and one-year papers fetched higher yields of 4.019% and 4.263%, respectively.

Meanwhile, the government raised P10 billion from the three-year bonds auctioned on April 3 with an average rate of 4.632%, higher than the 4.25% coupon rate.

At the secondary market on Friday, the 91-day, 182-day and 364-day papers fetched yields of 3.4068%, 3.8478% and 3.9159%, respectively, while the three-year bond was quoted at 4.5804%.

Decent demand is expected at the three-year bonds auction, “reflecting investors’ preference,” ANZ Research said in a report released last week.

BSP MEETING
Sought for comment, traders said the market will await the meeting of the BSP’s Monetary Board, which is seen to tighten monetary policy settings.

“The market will wait for the Monetary Board meeting. There is a possibility of a rate hike given the higher inflation,” the first trader said.

Inflation reached a five-year high of 4.5% in April, preliminary data from the Philippine Statistics Authority showed.

This was higher than the 4.3% inflation logged the previous month while matching the median estimate in a BusinessWorld poll of 11 economists.

“We believe that this pace of inflation, coupled with strong imports and credit growth, warrants a rate hike,” ANZ Research said. “However, as the BSP did not indicate any inclination to raise rates, our base case is that the overnight reverse [repurchase] policy rate would be maintained at 3%.”

ANZ Research added that the “situation somewhat changed” when the monetary authority indicated recently that it is “ready to make measures to protect price and financial stability.”

“This view of the central bank has raised the odds for a rate hike next week,” ANZ Research noted.

Last week, BSP Governor Nestor A. Espenilla, Jr. said latest observations bared that inflation is becoming broader than initially expected.

“What we react to is whether it’s spreading and it is affecting expectations. And our reading, based on the latest data, it seems to have spread somewhat,” Mr. Espenilla said.

BSP Deputy Governor Diwa C. Guinigundo said separately that the Federal Reserve’s decision to remain on hold last week demonstrates the “gradual” pace of policy tightening in the US, which he noted will be a “very important input” to the BSP’s own policy meeting.

Domestic inflation remains a bigger concern, the central bank official added.

The Treasury is holding two auctions per week this quarter — one for T-bonds and another for T-bills — to reflect increased borrowing requirements.

The government plans to borrow P888.23 billion this year from local and foreign sources to fund its budget deficit, which is capped at 3% of the country’s gross domestic product.