YIELDS ON government securities on offer this week will likely continue rising after February inflation hit a 26-month high.

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

On Tuesday, the BTr will auction off P30 billion in reissued 10-year Treasury bonds (T-bonds) with a remaining life of six years and one month.

The rates of the T-bills will likely inch up by up to five basis points (bps) at this week’s auction, Security Bank Corp.’s Chief Investment Officer for Trust and Asset Management Group Noel S. Reyes said, while a bond trader expects the short-term papers’ yields to rise by as much as 10 bps.

“Market is still fixated on inflation given rising oil and commodities prices,” Mr. Reyes said via Viber on Saturday.

Consumer prices rose faster for a fifth straight month to a 26-month high in February as food prices continued to surge, the Philippine Statistics Authority (PSA) reported on Friday.

Preliminary data from the PSA showed headline inflation at 4.7% last month, picking up from 4.2% in January 2021 and 2.6% in February 2020. The February inflation result marked the fastest pace since the 5.1% in December 2018.

The latest headline figure was a tad lower than the 4.8% median in a BusinessWorld poll but fell within the 4.3%-5.1% estimate given by the Bangko Sentral ng Pilipinas (BSP) for February.

Year to date, February inflation settled at 4.5%, beyond the BSP’s 2-4% target for the year.

Meanwhile, Mr. Reyes said the reissued 10-year T-bonds could fetch an average rate close to 4%, while the trader gave a 3.65-3.75% forecast range.

The trader said there continues to be ample demand for government securities despite the expected uptick in yields, but the volume of bids could be lower than the high tenders seen at the start of 2021.

The Treasury last week raised P20 billion as planned via the T-bills from P41.052 billion in bids, even as rates increased across the board.

Broken down, it borrowed the programmed P5 billion via the 91-day debt papers as tenders reached P7.595 billion. The three-month papers fetched an average rate of 1.04%, up from the 0.875% seen at the Feb. 22 auction.

It also raised P5 billion as planned from the 182-day T-bills from P8.462 billion in bids. The average rate for the six-month debt went up to 1.226% from 1.067% previously.

Lastly, the government made a full P10-billion award of the 364-day debt papers from tenders worth P24.995 billion. The one-year securities saw yields climb to 1.68% from the previous rate of 1.527%.

Meanwhile, the last time the BTr offered the series of reissued 10-year bonds  on offer on Tuesday was on Jan. 19, when it raised P30 billion as planned after attracting P82.5 billion in demand.

The bonds fetched an average rate of 2.719%, down from 2.791% seen at the previous offering in December.

At the secondary market on Friday, the yields on the three-month, six-month and one-year T-bills were at 1.082%, 1.195%, and 1.683%, based on PHL Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the seven-year tenor — the closest benchmark remaining life of the 10-year bonds on offer on Tuesday — was quoted at 3.479%.

The bond trader added the continued rise in US Treasury yields could also drive local government bond rates up.

The benchmark 10-year US Treasuries’ yield hit 1.56% on Friday, up by 11 bps from 1.45% on Monday, based on the US Treasury’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 T-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. — Beatrice M. Laforga

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