T-bill, bond rates may rise on BSP’s policy rate hike signals

By Aaron Michael C. Sy, Reporter

RATES on Treasury bills (T-bills) and Treasury bonds (T-bonds) may rise this week as markets reassess the Bangko Sentral ng Pilipinas’ (BSP) policy outlook following signals that the central bank could tighten monetary policy if global oil prices surge further.

Analysts said yields in the primary market could follow the upward trend seen in the secondary market last week as rising geopolitical tensions pushed crude oil prices higher.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the prolonged conflict in the Middle East has lifted global oil prices, raising the risk of faster inflation and potentially affecting the BSP’s monetary policy stance.

The Bureau of the Treasury (BTr) will auction P27 billion worth of T-bills on Monday, offering P9 billion each in 91-, 182- and 364-day debt.

On Tuesday, it will also offer reissued 10-year T-bonds with a remaining life of seven years and five months, targeting to raise P20 billion to P30 billion.

Data from PHP Bloomberg Valuation Service Reference Rates posted on the Philippine Dealing System’s website showed yields on government securities rising across most tenors late last week.

Short-term Treasury bill rates moved higher, while yields on medium- and long-term bonds posted sharper increases.

The 10-year government bond yield climbed significantly, reflecting investors’ concerns about inflation risks and the potential shift in the interest rate outlook.

The seven-year yield, which is closest to the remaining life of the bonds to be auctioned this week, also rose sharply.

A trader said the sell-off in bonds was partly driven by remarks from BSP Governor Eli M. Remolona, Jr., who indicated that the central bank might consider raising borrowing costs if global oil prices climb beyond $100 per barrel and trigger higher inflation.

“Bids were very thin throughout the session as players recalibrated their policy outlook,” the trader said in an e-mailed reply questions.

“US nonfarm payroll data will be the next catalyst aside from developments in the Middle East,” the trader added.

Mr. Remolona told Bloomberg TV rising oil prices could affect inflation if higher fuel costs spill over to the prices of other goods and services.

“When the price of oil begins to have effects on the prices of many commodities, that tends to be something we have to worry about when it comes to inflation,” he said.

The BSP last month cut its benchmark interest rate by 25 basis points (bps) to 4.25%, extending an easing cycle that began in 2024. The reduction brought cumulative rate cuts since the start of the cycle to 225 bps.

Before that, the central bank last raised borrowing costs in October 2023 through an off-cycle increase that brought the policy rate to a 17-year high.

Despite the recent rise in yields, demand for government securities remained strong in the latest Treasury bill auction.

The government raised P27 billion as planned last week after the offer was almost three times oversubscribed, with total tenders exceeding P76 billion.

The Auction Committee fully awarded the debt across all tenors as accepted yields remained below prevailing secondary market levels, the Treasury said in a statement.

Demand was strongest for the shorter tenors, particularly the three- and six-month bills, which attracted robust bids from investors seeking relatively safer short-term placements amid market volatility.

The government also fully awarded the one-year paper after receiving more than twice the amount on offer.

The reissued 10-year bonds to be auctioned this week were last sold in February, when the government raised P30 billion at an average yield well below the security’s coupon rate.

The Treasury is targeting to raise P248 billion from the domestic market this month, composed of P108 billion in T-bills and P140 billion in T-bonds.

Proceeds from the debt sales will help finance the government’s budget deficit, which is capped at P1.647 trillion this year, equivalent to 5.3% of gross domestic product.