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RATES of government securities on offer this week are expected to climb further as headline inflation likely hit a near four-year high in June, which may cause the Bangko Sentral ng Pilipinas (BSP) to hike borrowing costs more aggressively.

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 seven-year Treasury bonds (T-bonds) with a remaining life of three years and seven months.

Traders said that rates of the government debt on offer this week are expected to climb as the June consumer price index (CPI) is expected to have reached a fresh peak.

“Expecting upward bias still, especially with CPI data due on Tuesday, and most are expecting it to reach or even break 6%,” the first trader said.

The first trader said T-bill rates may increase by 10 basis points (bps), while the reissued seven-year bond could fetch yields between 5.625% and 6%.

Meanwhile, the second trader said the T-bills on offer this week could fetch rates 5-10 bps higher than those seen in the previous auction, while the seven-year bond could attract yields ranging from 5.6% to 5.9%.

“Market players will continue to ask for relatively higher yields compared to benchmark yields in the secondary market to price in a possible uptick in inflation which may cause BSP to be more hawkish than initially anticipated,” the second trader said.

The trader added that both offerings could attract “robust” demand as three-year papers worth P103.6 billion maturing this week will free up liquidity.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also expects the government debt on offer this week to be quoted at yields as the market anticipates further tightening from the BSP.

“Weaker peso exchange rate could lead to higher import costs and overall inflation, thereby partly [justifying] local policy rate hikes going forward,” Mr. Ricafort said in a Viber message.

The Philippine Statistics Authority will release its June consumer price index report on Tuesday, July 5.

A BusinessWorld poll of 16 analysts last week yielded a median estimate of 6% for June inflation, within the 5.7-6.5% forecast given by the BSP last week.

If realized, this would be well above the BSP’s 2-4% target and 5% forecast for the year.

In May, headline inflation was at 5.4%, fueled by rising food and transport costs.

BSP Governor Felipe M. Medalla last week said the central bank may consider a more aggressive rate hike at its Aug. 18 meeting if inflation keeps its upward momentum, but noted the decision will remain data dependent.

Early in June, ahead of the US Federal Reserve’s decision to increase its own rates by 75 bps at its own meeting that month, Mr. Medalla said he is not keen on raising borrowing costs by more than 25 bps per meeting.

The BSP on June 23 raised benchmark interest rates by 25 bps for a second straight meeting to cool rising prices.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills were quoted at 1.7829%, 2.2109%, and 2.6057%, 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 5.5754%, while the four-year tenor, the benchmark closest to the remaining life of the bonds to be offered on Tuesday, was quoted at 5.5754%.

Last week, the BTr raised just P13.95 billion from its offer of T-bills, even as total bids reached P27.176 billion, nearly double the P15-billion offer.

Broken down, the Treasury raised P5 billion as programmed from its offer of 91-day securities as the tenor attracted P14.93 billion in bids. The average rate of the tenor climbed by 9.6 bps to 1.855 from the 1.759% fetched at the previous auction. Accepted rates ranged from 1.8% to 1.91%.

The BTr also made a full P5-billion award of the 364-day debt papers, with total tenders reaching P6.75 billion. The average rate of the one-year tenor climbed by 17.6 bps to 2.63% from the 2.454% seen previously, with the government accepting offers ranging from 2.45% to 2.874%.

Meanwhile, the government partially awarded its offer of the 182-day debt papers, raising just P3.95 billion versus the P5-billion program, even as bids reached P5.5 billion. The average rate of the six-month tenor jumped by 26.8 bps to 2.4% from 2.132%, with yields on the awarded bids at the 2.23-2.5% band.

On the other hand, the reissued seven-year papers to be offered on Tuesday were last auctioned off on Jan. 21, 2020, where the BTr made a partial award of P27.203 billion versus the P30-billion program. At that auction, the tenor fetched an average rate of 4.732%.

The Treasury wants to raise P200 billion from the domestic market in July, or P60 billion through T-bills and P140 billion via 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. — Diego Gabriel C. Robles