RATES OF THE Treasury bills (T-bills) on offer this week could increase further as investors become more concerned over high inflation and with demand seen to weaken as the retail Treasury bond (RTB) sale continues.

The Bureau of the Treasury (BTr) is looking to borrow P20 billion via its offer of T-bills on Monday: P5 billion each from the 91- and 182-day debt papers and P10 billion via the 364-day instruments.

Bond traders interviewed last week expect the yields on the short-term papers to move sideways or increase by five basis points (bps).

“For [this] week, our prediction is sideways to higher by five basis points because the demand for the T-bills now is very weak, coupled with high inflation,” a trader said by phone on Friday.

Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno said on Friday that inflation likely settled between 4.3% and 5.1% in February, faster than the two-year high of 4.2% in January and beyond the 2-4% annual target.

Mr. Diokno said the expected pickup in prices is due to the continued rise of fuel and food costs. He said the central bank expects inflation to breach the four-percent level until the third quarter as supply side issues remain.

Meanwhile, another bond trader sees the T-bill rates increasing further as the local bonds track the sustained yield uptick in US Treasuries.

“The market is factoring in expectations for local inflation as well as rising interest rates in the US. Economic data in the US show signs of progress in their recovery,” the trader said.

The benchmark 10-year Treasury note on Thursday shot to a one-year high of 1.614%, a move that rocked world markets, Reuters reported.

Yields on the 10-year note fell steadily throughout Friday’s session to trade 11.7 bps lower at 1.3981%.

“The market is also anticipating the eventual lifting of restrictions as some think MGCQ might not be that far away. Despite some delay, the vaccines may also have an effect on the lifting of restrictions and recovery of the economy,” the second trader added.

President Rodrigo R. Duterte last week rejected the economic team’s suggestion to put Metro Manila under the most relaxed form of quarantine starting March, formally known as the modified general community quarantine (MGCQ), until the government’s vaccination program starts.

Economic managers earlier argued that looser mobility restrictions will help the country recover faster.

The first trader also noted that demand for the T-bills has weakened and will continue to do so as money shifts to the Treasury’s ongoing retail bond sale.

The government is selling three-year RTBs until March 4, unless the offer period is closed earlier. The bonds carry a coupon rate of 2.375% and are being sold for a minimum investment of P5,000.

The Treasury sold an initial P221.218 billion in the RTBs at the rate-setting auction held on Feb. 9.

The BTr made a full P20-billion award of the T-bills auctioned off last week even as rates increased across the board after months of decline.

Broken down, the Treasury raised P5 billion as planned from the 91-day debt papers, with tenders reaching P12.613 billion. The three-month papers fetched a higher average rate of 0.875% against the 0.845% seen during the Feb. 15 auction.

It also borrowed the programmed P5 billion via the 182-day T-bills from P13.127 billion in bids. The average yield of the six-month instruments inched up to 1.067% from the previous rate of 1.046%.

Lastly, the government made a full P10-billion award of the 364-day securities on offer last week as tenders hit P24.311 billion. The average rate of the one-year bills climbed to 1.527% from 1.416% previously.

At the secondary market on Friday, the three-month, six-month and one-year papers were quoted at 0.996%, 1.113%, and 1.556%, respectively, based on PHL Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

The BTr wants to raise P160 billion from the local bond market this month, broken down into P100 billion of T-bills to be offered weekly and P60 billion via auctions of Treasury bonds every other week.

The government is looking to borrow P3 trillion this year from local and foreign lenders to help fund its budget deficit seen to hit 8.9% of gross domestic product. — B.M. Laforga