RATES of government securities are expected to rise this week ahead of the central bank’s planned rate hike and the recent inflation data that prompted investors to seek higher returns.

The Bureau of the Treasury (BTr) will offer P15 billion in Treasury bills (T-bills) on Monday, broken down into P5 billion each in 91-, 182- and 364-day debt papers.

On Tuesday, the BTr will auction off reissued seven-year Treasury bonds (T-bonds) with a remaining life of six years and 11 months.

A trader in a Viber message said that the recent inflation data and the upcoming central bank meeting, which is expected to produce a rate hike, were returning themes this week.

“Those two are usually bearish themes for bonds thus prices become relatively cheaper as yields rise,” the trader said, adding that investors remained cautious amid expectations of a looming rate hike by the central bank.

The first trader expects the rates of T-bills to go up 5-10 basis points (bps), while the reissued seven-year bonds up for offer to range between 6.540% and 6.550%.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort sees rates of T-bills moving sideways with a slight upward bias, comparable with yields at the secondary market, which rose after recent inflation data.

He said that the latest increase in yields at the secondary market was “also due to higher transport costs and jeepney minimum fare that could add to inflation.”

The implementation of a daily minimum wage hike in 14 regions and a P1 increase to a minimum of P10 in fares for public utility jeepneys in Metro Manila, Central Luzon, Calabarzon and Mimaropa this month will likely add to inflationary pressures.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno last month said that the central bank would likely raise the key interest rate by another 25 bps at the next Monetary Board meeting on June 23, following the hike during the May 19 meeting to curb growing inflationary pressures.

Last week, Monetary Board member and incoming BSP chief Felipe M. Medalla said in a Bloomberg interview that policy makers were “almost” sure to hike rates at the upcoming meeting, while a “90% chance” looms of another increase at their subsequent review on Aug. 18.

Headline inflation for May was recorded at 5.4%, above the BSP’s 2-4% target band, and matching the median inflation forecast by economists in a recent BusinessWorld poll. A bulk of the inflation came from soaring commodity and fuel prices.

May’s headline print was also the fastest since the 6.1% seen in November 2018.

Year to date, inflation has averaged 4.1%, lower than the central bank’s 4.6% forecast but above its 2-4% target for the year.

Meanwhile, a second trader also sees rates moving sideways with a slight upward bias, as the market stays cautious amid the upcoming Federal Open Market Committee (FOMC) meeting on June 14-15, where its members are expected to hike rates by another 50 bps.

At the secondary market on Friday, the 91- 182- and 364-day T-bills were quoted at 1.4863%, 1.8785%, and 2.1071%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the seven-year bond fetched a yield of 6.4506%.

Last week, the BTr raised just P13.924 billion from its offer of T-bills, despite total bids reaching P42.654 billion, nearly triple the P15 billion on offer.

Broken down, the government fully awarded the 91-day debt papers, raising P5 billion as programmed as the tenor attracted P20.790 billion in bids. The average yield on the three-month tenor was at 1.44%, 21.5 bps lower than the 1.46% seen previously.

The BTr also raised P5 billion as programmed from the 182-day T-bills, with total tenders reaching P15.02 billion. The average rate of the six-month debt papers went up by 2.2 bps to 1.834% from the 1.812% fetched at the previous auction.

Lastly, the Treasury partially awarded its offer of one-year securities, raising just P3.924 billion against its P5-billion program, even as bids reached P6.84 billion. The average rate of the one-year T-bill increased by 36.4 bps to 2.297% from the 1.933% quoted for the tenor’s last successful award on May 2.

Meanwhile, the last time the government offered the reissued seven-year bonds to be auctioned off on Tuesday was on May 17, when it raised just P20.10 billion. The bonds carry a coupon rate of 6.5%, with the BTr capping bids at 6.6%.

The BTr wants to raise P250 billion from the domestic market in June, or P75 billion through T-bills and P175 billion from T-bonds.

The government borrows from local and external sources to help plug a budget deficit capped at 7.7% of gross domestic product this year. — Tobias Jared Tomas