T-bill, bond rates seen to inch up amid inflation fears

YIELDS on government securities may rise this week on the expected increase in interest rates following the signals from the US Federal Reserve last week, coupled with lingering inflation fears back home.

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

The BTr will also auction off P35 billion in reissued 10-year Treasury bonds (T-bonds) with a remaining life of nine years and nine months on Tuesday.

In separate phone interviews on Friday, a bond trader said T-bill rates will only move sideways on ample demand for the short-term debt while another bond trader is expecting rates to “have an upward bias as investors might ask for higher yields.”

For the reissued 10-year bonds, the first trader expects yields to range from 4.5% to 4.65% while the second trader gave a slightly wider band of 4.5-4.7%.

Both traders cited the signals from the Fed’s meeting last week as the main driving factors for the anticipated increase in bond yields after the central bank laid out its timetable for tapering and interest rate hike.

The Fed after the Federal Open Market Committee’s two-day meeting last week said it could begin tapering its monthly bond purchases by November if jobs data will remain strong, Reuters reported.

Interest rate hikes may also begin next year once its bond-buying program ends, as nine of 18 Fed policy makers believe borrowing costs have to increase in 2022.

Back home, the traders said the market will also price in lingering fears over high inflation after the Bangko Sentral ng Pilipinas (BSP) increased its forecast for the year.

During its policy-setting meeting on Thursday, the BSP raised its inflation outlook for the year to 4.4% from 4.1% previously as supply issues continue to push food prices higher. This is beyond the 2-4% target of the central bank for 2021.

Headline inflation quickened to 4.9% in August from 4% in July, its fastest pace in more than two years, to bring the eight-month average to 4.4%, which is above the central bank’s target.

The BTr made a full award of the T-bills it offered last week as rates dipped across the board and total bids went up to P72.5 billion from P63.27 billion the week prior.

Broken down, it raised P5 billion as planned via the 91-day debt papers at an average rate of 1.07%, lower than the 1.079% seen at the auction on Sept. 13

It also borrowed the programmed P5 billion via the 182-day T-bills as the average yield went down to 1.389% from 1.402% a week before.

Lastly, the government made a full P5-billion award of the 364-day papers from P24.42 billion in tenders. The one-year securities fetched an average rate of 1.597%, dipping by 0.7 basis point from 1.604%

Meanwhile, the last time the government offered the reissued T-bonds was on Sept. 14 when it borrowed P35 billion as planned from P61.829 billion in total tenders.

The notes fetched an average rate of 4.246%, climbing from 3.914% recorded in the auction on Aug. 3.

“The China Evergrande group debt woes last week triggered a risk off sentiment in the local market, causing yields to adjust higher in the secondary market. The issue will continue to weigh on sentiment,” the first trader said.

At the secondary market on Friday, the 91-, 182- and 364-day T-bills were quoted at 1.122%, 1.372% and 1.66%, respectively, while the 10-year tenor fetched 4.3406%, according to the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

The Treasury is looking to raise P250 billion from the local market this month: P75 billion via weekly offers of T-bills and P175 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. — Beatrice M. Laforga