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T-bills to fetch higher rates due to thin demand

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By Karl Angelo N. Vidal, Reporter

TREASURY BILLS (T-bills) on offer this week will likely fetch higher yields amid lower demand as the market expects the local central bank to raise its policy rates anew following the faster-than-expected June inflation print.

The Bureau of the Treasury (BTr) is offering P15 billion worth of T-bills at its auction today. Broken down, the Treasury will raise P4 billion and P5 billion via three- and six-month papers, respectively, and another P6 billion from the one-year debt papers.

Traders said over the weekend that yields on the shorter-termed papers will likely pick up, with one saying rates could rise by about 10 to 15 basis points across the board from the previous auction.

Last Monday, the government partially awarded the T-bills it placed on the auction block, raising just P11.9 billion out of the P15 billion it wanted to borrow.

Broken down, at that auction, the BTr accepted P4 billion as planned in the 91-day tenor, fetching an average rate of 3.404%, lower by eight basis points from the previous auction.

The Treasury however partially awarded the 182- and 364-day papers, borrowing just P3.04 billion and P4.029 billion, respectively. The rate of the six-month bills climbed 6.4 basis points to 3.937%, while the yield on one-year securities also rose to 4.566% by 13.7 basis points.

At the secondary market on Friday, the three- and six-month debt notes fetched 3.2639% and 3.8254%, respectively, while the one-year papers were quoted at 4.5625%.

The trader said the T-bills on auction today “will see weaker demand” from investors.

“I don’t think people are inclined to buy at this point,” the trader said in a text message on Saturday, noting the market is expecting the Bangko Sentral ng Pilipinas (BSP) to hike its interest rates again following higher inflation last month.

The government reported on Thursday that headline inflation accelerated to a fresh five-year high of 5.2% in June.

Last month’s inflation print surged from May’s 4.6% figure and was faster than the 4.7% median in a BusinessWorld poll.

The latest figure also exceeded the 4.3-5.1% estimate range by the Bangko Sentral ng Pilipinas and the 4.9% estimate of the Department of Finance.

Price increases in June were led by alcohol and tobacco (20.8%), transport (7.1%), as well as food (6.1%).

BSP Governor Nestor A. Espenilla, Jr. said the uptick in inflation was “a setback.”

“We will review and update our situational assessment and forecast inflation path,” Mr. Espenilla said last week. “This will shape the strength and timing of our next monetary policy response to firmly anchor inflation expectations.”

“The market may start pricing in another rate hike from BSP after the inflation data,” the bond trader added.

The BSP has already raised its rates twice this year, with borrowing costs now within a 3-4% range.

The Treasury is set to raise P300 billion from the domestic market this quarter through auctions of securities, offering P195 billion in T-bills and another P105 billion in Treasury bonds.

Aside from this, plans for another dollar bond float as well as yen-denominated “samurai” papers are also being finalized.

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.