Treasuries and bond rates could move sideways ahead of inflation data
Government securities RATEs on offer this week are expected to move sideways with a slight upward bias as the market awaits April inflation data and the outcome of the US Federal Reserve policy meeting on May 3-4 .
The Bureau of the Treasury (BTr) will auction 15 billion pesos in treasury bills (treasury bills) or 5 billion pesos each in 91-, 182- and 364-day securities on Monday.
On Tuesday, it will offer 35 billion pesos in reissued three-year Treasury bills (T-bonds) with a remaining life of two years and 11 months.
“Treasuries will just move sideways and maybe mirror last week’s results,” one trader said in a Viber message. “The bond market will have a full plate this week given the release of [the] consumer price index (CPI) for April and before the results of the FOMC (Federal Open Market Committee) meeting, where [the] the market expects a rise of 50 basis points, as well as the unveiling of its plan to reduce its balance sheet.
Meanwhile, the average three-year paper rate would likely be between 4.35% and 4.45%, the trader said.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also said via Viber that government securities yields will be auctioned off this week could move sideways with a slight upward bias, similar to secondary market rates.
Ricafort said possible market catalysts include relatively higher oil prices and hawkish signals from the head of Bangko Sentral ng Pilipinas (BSP).
He added that the market will also be watching the outcome of the Fed’s policy review and April inflation printing.
Headline inflation likely exceeded the central bank’s target again after Iffive months, as the protracted war in Ukraine as well as Tropical Storm Agaton caused faster price increases.
A Business world poll of 17 analysts gave a median estimate of 4.6% for April inflation, corresponding to the midpoint of the BSP forecast of 4.2% to 5%.
If realized, it would be faster than the 4% in March and the 4.5% in April 2021. It would also be the first time inflation has exceeded the 2-4% target after printing. of 4.2% recorded in November.
Analysts said continued rise in oil prices amid prolonged conflICT in Ukraine as well as weather disruptions likely caused faster price increases last month.
The government will publish the month of April inflinformation data on Thursday, May 5.
On Friday, Brent crude fell 12 cents to $107.14 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 67 cents to $104.69 a barrel, reported Reuters.
Brent and WTI both rose for the week and posted their fifth consecutive monthly gain. Brent ended the month up 1.3%, while WTI ended up 4.4%.
Meanwhile, Fed Chairman Jerome H. Powell earlier said he would consider a 50 basis point (bp) hike in his May 3-4 policy review after the 25-basis hike. pb in March.
At home, BSP Governor Benjamin E. Diokno said in a Bloomberg TV interview last week that the central bank may consider raising record interest rates at its June 23 meeting.
This marks a break with Mr Diokno’s previous statements that the central bank would only consider normalizing its stance in the second half of the year or when the Philippine economy recovers. Ifrms up.
The BSP has kept its key rates at historically low levels since November 2020 to severely support an economyffected by the coronavirus pandemic.
In the secondary market on Friday, 91-day, 182-day and 364-day Treasury bills reached yields of 1.2501%, 1.56% and 1.9332%, respectively, based on valuation benchmark rates. PHP Bloomberg published on the Philippine Dealing System website.
Meanwhile, the three-year term was quoted at 4.15%.
Last week, the BTr fully awarded its T-bill offuh because the rates have mostly gone down. The tenders reached 37.64 billion pesos, more than the program of 15 billion pesos.
Broken down, the BTr raised 5 billion pesos as expected via 91-day securities, as it attracted 17.2 billion pesos in tenders. The average three-month Treasury bill rate fell 8.3 basis points to 1.14% from 1.223% at the previous auction.
The Treasury also allocated all of the 5 billion pesos of the 182-day debt securities, with bids reaching 13.44 billion pesos. The average rate for the six-month term also edged down 1bp to 1.558% from 1.568%.
Finally, the government borrowed 5 billion pesos as programmed on the 364-day instruments from 6.998 billion pesos during tenders. Tepid demand pushed the average one-year paper rate up 2.4 basis points to 1.901% from 1.877% previously.
Meanwhile, the last time the government offreissued the three-year Treasury bills that will be auctionedff Tuesday was April 5, where it raised just 25.971 billion pesos against the 35 billion peso program. Tenders for the new issue reached P60.66 billion and the debt securities were allotted at a coupon rate of 4.25%.
The Treasury wants to raise 200 billion pesos on the local market in May, or 60 billion pesos via treasury bills and 140 billion pesos via treasury bonds.
The government is borrowing from local and external sources to help finance a budget deficit capped at 7.7% of gross domestic product this year. — T. J. Tomas with Reuters