Treasuries and bonds could hit higher rates after BSP decision

RATE of public securities on offer this week are expected to rise following the central bank’s decision to raise borrowing costs amid risingflation.

The Bureau of the Treasury (BTr) will offer 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 be auctioned off 35 billion pesos in reissued 10-year Treasury bonds (T-bonds) which have a remaining life of nine years and eight months.

A trader said in a Viber message that reports on treasury bills on offMonday could climb 20 to 25 basis points (bp), while the average rate on the 10-year reissue bond could range between 6.625% and 7%.

“The market will now take into account the outlook forflration in the coming months following the revision of Bangko Sentral ng Pilipinas (BSP) inflation outlook given the still high commodity prices,” the trader added.

A second trader said in a Viber message that yields on Treasuries and Treasuries could end higher this week to follow the BSP’s decision to raise borrowing costs.

“GS (government securities) yields were already high before the announcement, so expect market participants to watch the 10-year auction and see how [the] BTr will reward.

The second trader added that the market is also waiting for BTr’s June borrowing plan to be released later this week for clues and how that would be affected by the drop in demand for government debt seen in recent auctions.

Rizal Commercial Banking Corp. chief economist Michael L. Ricafort said Treasury yields could rise 0.05 basis points to 0.09 basis points. He added that the seven-year bond could see its average rate increase by 0.12 basis points to 0.33 basis points.

He said that the auction rates could increase due to the increase in secondary market yields as well as the decision of the BSP and inflthe nation’s fears of rising global oil prices and wages.

BSP raised benchmark interest rates for Iffirst time since 2018 to tame the climbflation.

The Monetary Council raised the key rate on Thursday by 25 basis points to 2.25%, as expected by eight analysts out of 17 in a Business world survey last week. Interest rates on deposit and overnight lending facilities were also raised by 25 basis points to 1.75% and 2.75%, respectively.

Inflation soared to 4.9% in April, its highest level in more than three years, as oil and commodity prices soared amid the Russian-Ukrainian war and disruptions in the supply chain.

At the meeting, the central bank revised up its average inflation forecast for 2022 to 4.6% from the previous forecast of 4.3%, beating the target range of 2% to 4%. For 2023, the BSP’s inflation forecast has been raised to 3.9% from 3.6% previously.

The start of the BSP tightening cycle came a week after the release of data showing that gross domestic product (GDP) grew 8.3% better than expected in the first quarter.

In the secondary market on Friday, 91-182 and 364-day Treasury bills were quoted at 1.4627%, 1.7553% and 2.0119%, respectively, based on PHP BVAL benchmark rates as of May 20. published on the Philippine Dealing. System website.

Meanwhile, the 10-year bond reached a yield of 6.416%.

Last week the government rejected all tenders for its T-bill offer as investors demanded higher rates on expectations of monetary policy tightening.

Broken down, the Treasury failed to allocate 91-day treasury bills even as bids reached 13.3 billion pesos, more than the 5 billion peso program. Had the Treasury granted a full grant, the three-month term would have reached an average rate of 1.759%, 22.8 basis points higher than the 1.531% seen in the previous grant.

The BTr also rejected the 7.33 billion peso tenders for the 182-day debt securities, even though this was higher than the 5 billion peso plan. If the BTr had granted its offer in full, the average six-month paper rate would have been 2.215%, up 53.78 basis points from the 1.6772% quoted for the duration in the secondary market before the end of the month. Monday auction.

Finally, the government refused offers for the 364-day debt securities despite demand reaching 7.17 billion pesos compared to the offer of 5 billion pesos. If the duration had been fully allocated, the one-year instrument would have been priced at an average rate of 2.828%, 86.61 basis points higher than the yield of 1.9619% over the secondary market duration.

Meanwhile, the last time the 10-year T-bonds auctioned on Tuesday was offered was April 26, when the bonds were partially allotted. The government only raised 17.559 billion pesos in this auction, less than the scheduled 35 billion pesos, at an average rate of 6.313%, 22.1 basis points higher than the previous 6.092% cited for bonds.

The BTr wants to raise 200 billion pesos domestically in May, or 60 billion pesos through treasury bills and 140 billion pesos through treasury bonds.

The government is borrowing from local and external sources to help finance a budget deficit capped at 7.7% of GDP this year. — T. J. Tomas

Garland K. Long