Rates of Treasury bills, bonds may rise ahead of BSP review

RATES of government securities are expected to climb this week ahead of the central bank’s policy review where it is widely expected to raise borrowing costs, which would cause investors to ask for higher yields.

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 debt papers.

On Tuesday, the BTr will auction off P35 billion in fresh 10-year Treasury bonds (T-bonds).

Two traders in a Viber message said that rates are expected to climb this week ahead of the central bank’s policy meeting on June 23 where it is expected to raise rates by 50 basis points (bps), bigger than the 25-bp hike at its May 19 meeting that kicked off its tightening cycle and despite incoming Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla’s earlier signals of a gradual policy normalization.

“I think it is market consensus that rates will be higher [this] week, [especially] with a growing number of analysts expecting a 50-bp hike from BSP. This [is] despite earlier guidance that they will do a gradual tightening,” the first trader said,

The first trader said the 10-year bonds on offer this week could fetch yields between 7% and 7.5%.

The second trader said T-bill yields could move 5-10 bps higher and the 10-year bond’s rate could be quoted from 7.125% to 7.5%.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise sees rates moving slightly higher this week to track the rise in secondary market yields after the US Federal Reserve’s 75-bp hike last week and signals on the BSP’s path towards normalization from its incoming chief.

Mr. Ricafort said while Mr. Medalla signaled gradual tightening and ruled out hikes bigger than 25 bps ahead of the Fed’s decision last week, this could change following the US central bank’s bigger-than-expected increase.

The Monetary Board is holding a policy meeting on Thursday, June 23. Mr. Medalla last week said a rate increase this week is a “sure thing,” with hikes at subsequent meetings also possible.

Analysts in a BusinessWorld poll were divided on the magnitude of the BSP’s move on Thursday, with nine expecting another 25-bp increase and six betting on a 50-bp hike. 

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills were quoted at 1.5705%, 1.9366%, and 2.2014%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the 10-year bond fetched a yield of 6.9816%.

Last week, the BTr raised just P14 billion from its offer of T-bills, even as total bids reached P29.68 billion, nearly double the P15-billion offer.

Broken down, the Treasury raised P5 billion as planned through the 91-day T-bills, with total bids reaching P12.33 billion. The average rate of the tenor went up by 13.2 bps to 1.572% from 1.44% previously.

The government also made a full P5-billion award of its offer of 182-day T-bills as tenders reached P15.02 billion. The average rate of the six-month tenor went up by 10 bps to 1.934% from 1.834%.

Meanwhile, the BTr partially awarded its offer of one-year securities, raising just P3.924 billion out of the P5-billion program even as tenders reached P6.84 billion in bids. The average rate of the one-year papers went up by 2.8 bps to 2.325% from the 2.297% seen at the previous auction, where it made a full award.

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

The government borrows from local and external sources to help fund a budget deficit capped at 7.6% of gross domestic product this year. — T.J. Tomas