Treasury bills and bonds may yield higher yields after BSP decision

RATES of government securities on oonwardsIt is expected to rise this week after the central bank decided to raise borrowing costs amid the surgebottlenation.

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

On Tuesday it will be auctioned oonwards P35 billion in newly issued 10-year government bonds (T-Bonds) with a remaining term of nine years and eight months.

A trader said in a Viber message that the T bills are yielding on oonwardsit could rise by 20 to 25 basis points (bps) on Monday, while the average rate of the newly issued 10-year bond could range between 6.625% and 7%.

“The market will now consider the prospects for big profitsbottlenation in the coming months following the revised Bangko Sentral ng Pilipinas (BSP) inflation outlook amid persistently high commodity prices,” the trader added.

A second trader said in a Viber message that T-Bills and T-Bonds yields could end higher this week to follow BSP’s move to raise borrowing costs.

“GS (government bond) yields were already elevated prior to the announcement so expect market participants to watch the 10-year auction and see how [the] Btr will be forgiven.”

The second trader added the market is also waiting for BTr’s June lending plan to be released later this week to attract leads and how this has been offset by the lower demand for government bonds seen in recent auctions. would be affected.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said T-bill yields could rise 0.05 basis points to 0.09 basis points. He added that the average rate on the seven-year bond could rise 0.12 basis points to 0.33 basis points.

He said auction rates could rise due to the rise in secondary market yields as well as the BSP and in decisionbottleation fears over higher global oil prices and wages.

The BSP has raised the benchmark interest rates for the fiThe first time since 2018 to tame the climbbottlenation.

The Monetary Board raised interest rates by 25 basis points to 2.25% on Thursday, as expected by eight out of 17 analysts business world poll last week. Rates on overnight deposits and lending facilities were also raised by 25 basis points to 1.75% and 2.75% respectively.

Inflation climbed to 4.9% in April, the highest in more than three years, as oil and commodity prices soared amid the Russia-Ukraine war and supply chain disruptions.

At the meeting, the central bank revised up its average inflation forecast for 2022 to 4.6% from the previous forecast of 4.3%, beating the 2%-4% target range. For 2023, the BSP inflation forecast has been raised to 3.9% from the previous 3.6%.

The start of the GNP tightening cycle came a week after the release of data showing that gross domestic product (GDP) grew better-than-expected by 8.3% the first quarter.

In the secondary market, Friday’s 91-, 182-, and 364-day T-Bills traded at 1.4627%, 1.7553%, and 2.0119%, respectively, based on PHP-BVAL reference rates as of May 20, which were published in the Philippine Dealing system’s website.

Meanwhile, the 10-year bond returned 6.416%.

Last week the government rejected all tenders for its T-bill oonwardser, as investors demanded higher interest rates in anticipation of monetary tightening.

At a breakdown, the Treasury did not award 91-day T-bills even as bids reached 13.3 billion pesos, higher than the 5 billion pesos program. Had the Treasury made a full allotment, the three-month maturity would have yielded an average rate of 1.759%, 22.8 basis points higher than the previous allotment’s 1.531%.

The BTr also rejected the bids for the P7.33 billion 182-day notes, although this was higher than the P5 billion plan. Had the BTr fully accepted its bid, the average price of the six-month notes would have been at 2.215%, up 53.78 basis points from the 1.6772% quoted for the term on the secondary market prior to Monday’s auction.

Eventually, the government turned down bids for the 364-day notes despite demand reaching P7.17 billion versus P5 billion supply. Had maturity been fully granted, the one-year instrument would have traded at an average price of 2.828%, 86.61 basis points higher than the yield of 1.9619% of maturity on the secondary market.

Meanwhile, the 10-year T-Bonds auctioned on Tuesday were last oonwardswas issued on April 26, where the bonds were partially forgiven. The government raised just P17.559 billion in this auction, less than the programmed P35 billion, at an average rate of 6.313%, 22.1 basis points higher than the 6.092% previously quoted for the bonds.

BTr plans to raise P200 billion from the domestic market in May, or P60 billion via T-Bills and P140 billion via T-Bonds.

The government is borrowing from local and external sources to fund a budget deficit limited to 7.7% of GDP this year. — TJ Tomas