T-bill, bond yields may advance as demand weakens on inflation risks

By Aaron Michael C. Sy, Reporter

RATES on Treasury bills and bonds to be offered this week are expected to climb further as investors turn cautious amid rising inflation risks linked to the Middle East war.

Analysts said yields could track the recent rise in the secondary market, driven by expectations of possible monetary tightening as oil prices surge.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said rate hike signals from policymakers could push yields higher.

The Bureau of the Treasury will auction P27 billion in Treasury bills on Monday, with P9 billion each in 91-, 182-, and 364-day tenors. On Tuesday, it will offer as much as P40 billion in dual-tenor Treasury bonds, including reissued seven-year papers with a remaining life of three years and one month and 25-year bonds with a remaining life of 23 years and 10 months.

Finance Secretary and Monetary Board member Frederick D. Go said a prolonged spike in oil prices might prompt the central bank to raise borrowing costs as early as next month.

The Monetary Board would likely consider tightening in the next meeting if the price of oil remains elevated, he said.

Bangko Sentral ng Pilipinas Governor Eli M. Remolona, Jr. has also said the central bank might act if higher energy costs spill over into broader inflation.

The Monetary Board will meet on April 23 and it could mark the first rate increase in more than two years after an easing cycle that cut the benchmark rate by 225 basis points to 4.25% since August 2024.

At the secondary market on Thursday, yields rose across the curve. The 91-, 182- and 364-day Treasury bill rates climbed to 4.98%, 4.96% and 5.09%, respectively.

The three-year yield rose to 6.27%, the seven-year to 6.75% and the 25-year bond to 7.25%, reflecting investor demand for higher returns amid uncertainty.

A trader said demand at this week’s auctions might be weaker, particularly for longer-dated securities, as investors remain wary of inflation and potential rate hikes.

The three-year and 25-year bonds are seen fetching higher average yields of 6.3% to 6.35% and 7.5% to 7.75%, respectively.

Sentiment remains cautious given the war and its impact on oil prices, the trader said, noting that attacks on key energy facilities have intensified fears of supply disruptions and further price pressures.

Last week’s Treasury bill auction already showed signs of softer demand. The government raised P19.2 billion, below its P27-billion program, despite total tenders reaching P36.8 billion, as higher yields prompted the Treasury to partially reject bids.

The 91-day bill fetched an average yield of 4.9%, up 22 basis points week on week, while the 182- and 364-day securities were awarded at 4.95% and 5.07%, respectively.

The reissued seven-year bonds were last offered in November 2024, when P15 billion was raised at an average yield of 5.954%, while the 25-year debt was last auctioned in February at 6.577%.

Analysts said the significant rise in yields suggests investors are demanding a higher risk premium amid uncertainty.

For March, the BTr aims to raise P248 billion from the domestic market, composed of P108 billion in Treasury bills and P140 billion in Treasury bonds.

The government taps both local and foreign borrowing to help finance its fiscal deficit, which is capped at P1.647 trillion or 5.3% of gross domestic product this year.