YIELDS ON government securities on offer this week will likely end mixed on concerns over rising inflation and looming rate hikes.

The Bureau of the Treasury (BTr) will offer P15 billion in Treasury bills (T-bills) on Monday, broken down into P5 billion each in 91-, 182- and 364-day debt papers.

On Tuesday, it will auction off reissued seven-year Treasury bonds (T-bonds) with a remaining life of six years and 10 months.

Two bond traders said T-bill rates will continue to move sideways this week as investors are looking to put their excess liquidity in these short-term safe-haven instruments.

However, for the longer-tenored T-bonds, the traders expect its yield to shoot up on fears of rising inflation and possible policy tightening by the US central bank.

The first trader said the average rate of the seven-year bonds on offer on Tuesday could range from 4.050% to 4.2%, while the second trader gave a higher estimate range of 4.15-4.3%.

“Traders will be watching inflation for the previous month since the BSP (Bangko Sentral ng Pilipinas) may consider raising interest rates sooner if inflation remains elevated. Also, some [US Federal Reserve] officials think that tapering of bond purchases based on economic data may be warranted as soon as November,” the second bond trader said via Viber on Saturday.

A BusinessWorld poll of 17 analysts yielded a median estimate of 5% for September headline inflation, closer to the upper end of the central bank’s 4.8%-5.6% estimate for the month and above its 2-4% target for the year. If realized, this will be faster than the 4.9% in August as well as the 2.4% a year earlier. It will also be the quickest print since the 5.1% in December 2018.

Analysts said higher food and utility prices as well as base effects likely caused a continued uptrend in inflation last month.

The Philippine Statistics Authority will report September inflation data on Tuesday, Oct. 5.

Meanwhile, the Fed earlier said it could hike rates as early as next year as it could taper its monthly bond purchases by November, Reuters reported.

“The local bond market will also price in the rally in global oil prices and the standoff in raising US debt ceiling [last] week,” the first trader added.

Oil prices reached nearly $80 per barrel due to depleting stockpiles as oil producers struggled to keep up with the rising demand amid a global economic recovery.

Meanwhile, Reuters reported that investors are getting more nervous over the looming fiscal crisis if the US Congress will not decide whether the debt ceiling has to be raised or not to avoid a possible government shutdown and its first-ever default.

The BTr last week upsized the volume of T-bills it awarded to P17 billion as total tenders reached P63.865 billion.

Broken down, it raised P5 billion as planned from the 91-day debt papers at an average rate of 1.06%, up from 1.07% the week prior.

It also awarded P5 billion as programmed in 182-day T-bills as its average yield fell to 1.385% from 1.389% previously.

Lastly, the BTr borrowed P7 billion via the 364-day securities, higher than the P5-billion plan, at an average rate of 1.582%, down from 1.597% the previous week.

Meanwhile, the last time the Treasury offered the seven-year bonds was on Sept. 21, when it made a full P35-billion award of the reissued papers and raised another P5 billion via the tap facility. The bonds attracted P76.128 billion in bids while its average rate climbed to 3.826% from the 3.789% seen in the previous auction.

At the secondary market on Friday, the 91-, 182- and 364-day T-bills were quoted at 1.13%, 1.393% and 1.663%, respectively, while the seven-year tenor fetched 3.899%, according to the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

The BTr is looking to raise P200 billion from the local market this month: P60 billion via weekly offers of Treasury bills and P140 billion from weekly auctions of T-bonds.

The government wants to borrow P3 trillion from domestic and external sources this year to help fund a budget deficit seen to hit 9.3% of gross domestic product. — B.M. Laforga