T-bill, bond rates likely to go up as data bolster tightening bets

RATES of the Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week may rise on growing expectations of further monetary tightening as the Middle East war continues to cast a pall over the Philippines’ economic prospects.

The Bureau of the Treasury (BTr) will auction off up to P39 billion in T-bills on Monday, or P10 billion to P13 billion each in 91-, 182-, and 364-day papers.

On Tuesday, the government wants to raise P30 billion from reissued seven-year T-bonds with a remaining life of four years and eight months.

T-bill and bond rates could climb, mirroring the week-on-week increase seen in secondary market yields, as faster-than-expected April headline inflation bolstered views of more hikes by the Bangko Sentral ng Pilipinas (BSP), Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“[This] could lead to more future BSP rate hikes to better manage inflation and inflation expectations, with the penultimate objective of fulfilling the central bank’s mandate of price stability to provide a more conducive environment for sustainable economic growth over the long term,” he said.

He added that yields eased a bit towards the end of the week following the soft first-quarter gross domestic product (GDP) data, although fresh clashes between the United States and Iran kept the market on edge.

Meanwhile, a trader said in an e-mail that the reissued bonds on offer on Tuesday could still be well received even amid continued uncertainty over the situation in the Middle East, with rates likely to be within 6.9% and 6.95%.

At the secondary market on Friday, yields on the 91-, 182, and 364-day T-bills jumped by 17.81 basis points (bps) to 4.7998%, 47.7 bps to 5.2372%, and 21.52 bps to 5.4295%, respectively.

For its part, the seven-year bond’s rate rose by 11.45 bps week on week to 7.0652%, while the five-year debt, the tenor closest to the remaining life of the papers to be auctioned off this week, went up by 8.39 bps to 6.9547%.

Philippine headline inflation surged to 7.2% in April, up sharply from the 4.1% in March and 1.4% a year ago. This was the fastest headline print in over three years or since the 7.6% recorded in March 2023. This was also well above the 5.5% median estimate in a BusinessWorld poll of 17 analysts and the central bank’s 5.6%-6.4% forecast for the month.

April also marked the second straight month that the consumer price index was above the BSP’s 2%-4% tolerance band.

On April 23, the Monetary Board hiked benchmark interest rates by 25 bps for the first time in over two years, bringing the policy rate to 4.5%. BSP Governor Eli M. Remolona, Jr. has signaled further tightening ahead via “a succession of modest rate hikes” to help temper spiraling prices and keep inflation expectations anchored.

Meanwhile, Philippine GDP expanded by 2.8% in the first quarter, down from 5.4% a year ago and also slower than the 3% pace in the fourth quarter. This was below the 3.4% estimate in a BusinessWorld poll of 21 analysts.

Last week, the government raised P28.07 billion via the T-bills it auctioned off, below the P31-billion offer even as total tenders reached P44.295 billion.

The Treasury raised P12 billion as planned via the 91-day T-bills as demand for the tenor reached P20.425 billion. The three-month paper fetched an average rate of 4.711%, climbing by 15.3 bps from the yield seen in the previous week. Bids accepted had yields ranging from 4.625% to 4.75%.

Meanwhile, the government borrowed just P9.68 billion via 182-day debt, below the P10-billion offering even as tenders reached P15.98 billion. The average rate of the six-month T-bill was at 4.964%, rising by 22.7 bps from the previous auction. Tenders awarded carried rates from 4.85% to 5.048%.

For the 364-day securities, the BTr sold only P6.39 billion, below the P9 billion on offer as bids totaled just P7.89 billion. The one-year paper fetched an average yield of 5.377%, increasing by 19.3 bps week on week. Accepted bids had rates from 5.2% to 5.5%.

Meanwhile, the reissued seven-year bonds to be sold on Tuesday were last offered on March 3, where the government raised P30 billion as planned at an average rate of 5.717%, below the 6.125% coupon.

The Treasury wants to raise P268 billion from the domestic market this month, or P128 billion via T-bills and P140 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.61 trillion or 5.3% of GDP this year. — A.M.C. Sy