Rates of T-bills, bonds to go up on rate bets

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GOVERNMENT securities on offer this week will likely fetch higher rates as investors await another rate hike from the central bank following the faster-than-expected August inflation print.

The Bureau of the Treasury (BTr) is offering P15 billion worth of Treasury bills (T-bill) today. Broken down, the Treasury plans to raise P4 billion through the three-month papers, P5 billion via the six-month debt and another P6 billion in one-year T-bills.

The BTr will also auction off P15 billion worth of reissued 10-year Treasury bonds (T-bond) on Tuesday with a remaining life of nine years and six months.

Bond traders interviewed last week said rates on the T-bills on offer today will likely climb from the previous auction.

“So far, the market is saying around 10-15 basis points (bps) higher from the previous auction, but I’m looking at 10-20 basis points even,” a trader said in a phone interview.

“The BTr might accept 20 bps since rates are still rising whatever happens,” the trader added.

The Treasury fully awarded the T-bills it offered last week, borrowing P15 billion as planned versus total tenders amounting to P27.5 billion.

Rates of the three-month, six-month and one-years papers rose to 3.225%, 4.101% and 4.899% respectively.

At the secondary market last Friday, the three- and six-month Treasury bills were quoted 4.0732% and 4.4071%, respectively, while one-year tenor fetched a 4.8988% rate.

The trader added that the 10-year bond auction on Tuesday could fetch a rate between 6.65% and 6.85%.

In July, the government rejected all tenders for its reissued 10-year debt which carry a 6.25% coupon.

Had the BTr accepted all bids, the papers would have fetched an average rate of 6.842%, 49.2 basis points higher from the previous auction.

The 10-year bonds fetched a 6.6727% yield at the secondary market on Friday.

Bond traders said market players will likely price into their bids the August inflation print which was faster than market and government expectations.

The Philippine Statistics Authority last week reported that prices of widely used goods increased by 6.4% in August, quicker than July’s 5.7% and August 2017’s 2.6%.

“Maybe it’s more of the [consumer price index] the market will factor in,” the trader said. “With that, the anticipated is for the BSP to hike by 25 or 50 basis points by Sept. 27.”

On Friday, Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla, Jr. hinted on another round of tightening, saying the monetary authority will “take strong immediate action” to respond to the emerging threats to prices and inflation expectations.

“We’re looking at a 25-bp hike on Sept. 27, but others are saying it will be 50 bps,” the trader added.

Meanwhile, ANZ Research said in an e-mail that the T-bond auction tomorrow will likely “face challenges” given the long tenor, renewed peso weakness and expectation of another BSP rate hike.

“The latter has prompted us to call for a 50-bp rate hike at the 27 September policy meeting,” ANZ Research added.

The government is set to borrow P300 billion from the domestic market this quarter through auctions of securities, offering P195 billion in T-bills and another P105 billion in bonds.

It plans to borrow P888.23 billion this year from local and foreign sources to fund its budget deficit capped at 3% of the country’s gross domestic product. — K.A.N. Vidal