RATES of government securities are expected to increase this week on continued inflation concerns as the war in Ukraine pushed up global oil prices.

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 auction off P35 billion in reissued five-year Treasury bonds (T-bonds) with a remaining life of four years and 23 days.

“After two consecutive T-bill auction rejections, yields for this T-bill auction will be much higher to realign with yields in the secondary market,” a trader said via Viber.

Meanwhile, the trader said the average yield on the five-year paper would likely range between 4.35% and 4.6%.

“Bids are expected to be defensive given the anxiety brought by the ongoing war in Ukraine that resulted to oil prices skyrocketing and this is expected to exert some pressure to our inflation,” the trader added.

Global oil prices increased on Friday as talks to restore the Iran nuclear deal, which would lift US sanctions on Iran’s oil sector, were paused over last-minute Russian demands, Reuters reported.

Brent crude futures increased by 3.1% to $112.67 a barrel on Friday.  US West Texas Intermediate crude futures rose by 3.1% to $109.33 a barrel.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that government securities yields would still be higher, in line with the secondary market, after a weaker peso exchange rate.

Higher inflation in the United States has also increased the likelihood of a rate hike from the US Federal Reserve, he said.

The peso closed at P52.29 versus the dollar on Friday, depreciating from P52.155 the day before  US inflation hit a 40-year high.

The US consumer price index rose to a four-decade high of 7.9% year on year in February as gasoline and food prices increased.

US Federal Reserve Chairman Jerome H. Powell previously said he is inclined to support a 0.25% rate hike at the upcoming March 15-16 meeting of the Federal Open Market Committee.

At the secondary market on Friday, the 91- 182- and 364-day T-bills were quoted at 1.1362%, 1.2738%, and 1.6577%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the five-year bond fetched a yield of 4.8103%.

As rates continued to rise, the government rejected all T-bill and T-bond bids in the previous two weeks.

Last week, the BTr did not award any T-bills even as tenders reached P21.23 billion, higher than the P15 billion on offer.

Broken down, bids for the 91-day securities reached P7.61 billion, higher than the P5-billion plan. Had the Treasury made a full award, the three-month debt papers would have fetched an average rate of 1.577%, surging by 67.8 basis points (bps) from the 0.899% seen the last time the BTr borrowed the full amount.

The BTr also rejected the P6.46 billion in tenders for the 182-day securities even as this was higher than the programmed P5 billion. The average rate of the six-month T-bill would have gone up by 81 bps to 1.967% from 1.157% previously had the government made a full award.

Lastly, the government turned down P7.17 billion in bids for the 364-day debt papers from an initial offer of P5 billion. If the tenor was fully awarded, the average yield on the one-year instrument would have stood at 1.943%, jumping by 37.5 bps from the 1.568% fetched previously.

Meanwhile, the last time the government offered the five-year T-bonds to be auctioned off on Tuesday was on Feb. 3, where it raised P35 billion as planned as total tenders reached P60.66 billion. The debt papers were awarded at an average rate of 4.089%.

The BTr wants to raise P250 billion from the domestic market this month, or P75 billion via T-bills and P175 billion from T-bonds.

The government borrows from local and external sources to help fund a budget deficit capped at 7.7% of gross domestic product this year. — Jenina P. Ibañez with Reuters