Treasuries and bonds could hit higher rates in BSP tightening cycle

The RATES of Treasury bills and bonds that will be offered this week should increase. — BW FILE PHOTO

RATE of public securities on offer this week are expected to increase as the Bangko Sentral ng Pilipinas (BSP) should borrowing costs will continue to rise over the next few months.

The Bureau of the Treasury (BTr) will offer 15 billion pesos in treasury bills (treasury bills) on Monday, consisting of 5 billion pesos each in 91-, 182- and 364-day debt securities.

On Tuesday, the BTr will auction 35 billion pesos in 25-year benchmark reissued treasury bills (T-bonds) with a remaining life of 13 years and four months.

Traders expect Treasury yields to rise in this week’s auction.

“The bias is still skewed towards higher yields by 10-15 basis points (bps) higher due to lower demand for short-term notes due to higher money market rates in the coming months. come,” said the Ifsaid the first trader.

The second trader said Treasury bill rates are likely to be stable as no major local economic data is expected to be released this week.

“The market will likely try to bid close to where BTr allocated last week’s bid,” the second trader added.

Meanwhile, the first trader said the Treasury bonds offered on Tuesday could yield yields ranging from 6.9% to 7.15%.

“This auction has every potential to be strong, just like previous bond auctions. Investors continue to go for duration due to relatively higher yields being offered”, the Ifsaid the first trader.

The second trader expects the reissued 25-year papers to be quoted between 7% and 7.25%.

“We have seen a strong recovery after last week’s successful auction. Expect the momentum to continue as more players need to deploy funds to increase yield,” the second trader added.

A third trader also said the bonds on offer this week could bring yields at the 7% levels, forecasting a range of 6.95-7.20%.

“Although BVAL (PHP Bloomberg Valuation Service Reference Rates) is flfrom around 10 years and beyond, the market will ask for a premium given that it’s longer than 10 years, which I think is the sweet spot for duration now,” said the third trader.

Rizal Commercial Banking Corp.’s chief economist, Michael L. Ricafort, said yields on debt securities to be auctioned this week could rise, particularly those for short-term maturities, “as indicated by the latest 28-day BSP securities auction results”.

Tte BSP on Friday allocated 150 billion pesos to the 28-day securities it offered, with bids reaching 229.37 billion pesos. The average rate for tenor was 3.45%, with accepted rates ranging from 3.2% to 3.5168%.

On July 14, the BSP Monetary Board raised benchmark interest rates by a record high of 75 basis points in an off-cycle and left the door open for further tightening amid rising risksflation.

BSP Governor Felipe M. Medalla said that the “signi of the Monetary CouncilIfThe rise in ‘can’t’ was due to signs of ‘sustained and mounting price pressures’ as well as spillover effeffects of aggressive tightening in other countries, such as the United States, in a global contextflconcerns.

Mr Medalla also said he would not rule out another interest rate hike at the Monetary Board’s policy review next month, although the need for a 50 basis point hike at the of this meeting is “much less now” after the surprise decision.

The central bank has become more headline aggressiveflation rose to 6.1% in June, the fastest in nearly four years. This brought the Iffirst-half average of 4.4%, above the central bank’s 2-4% target, but still below its 5% forecast for the year.

Meanwhile, the government last week raised 35 billion pesos as planned through its offering of 10-year reissued securities which have a remaining life of nine years and 11 months. Total bids reached 123.32 billion pesos, more than triple the amount of the auction block.

The rates granted ranged from 6.8% to 6.89%, bringing the average bond yield over offat 6.865%, down 28 bps from the average of 7.145% and 38.50 bps from the coupon of 7.25% obtained for the series in its first offdelivered June 21.

Strong demand prompted the BTr to offer P20 billion of the same bonds via its tap facility on Tuesday afternoon, which was also fully allocated. Offers for it offreached 92.21 billion pesos.

The outcome of the 10-year bond auction also pushed secondary market yields higher at the long end of the curve week-on-week, PHP BVAL benchmark rates showed on the Philippine Dealing website. System.

In the secondary market on Friday, 91-day, 182-day and 364-day Treasury bills were quoted at 2.1364%, 2.7365% and 3.137%, respectively, based on benchmark PHP BVAL rates.

Meanwhile, the 25-year bond reached a yield of 6.884%. The 10-year bond, the term closest to the remaining life of the papers to offered on Tuesday, returned 6.8079%.

Last week, the BTr raised only 12.9 billion pesos through its treasury bond auction, less than the 15 billion peso program, even with bids reaching 33.52 billion pesos. , more than double the expected amount.

Broken down, the Treasury allotted a total of 5 billion pesos in 91-day securities, with the duration attracting 16.62 billion pesos in bids. The average tenor rate rose 44.7 basis points to 2.323%. Accepted rates ranged from 1.85% to 2.75%.

The government also raised 5 billion pesos as planned from 364-day debt securities, with offers reaching 8.02 billion pesos. The average one-year maturity rate rose 27.7 basis points to 3.258%, with yields on winning bids in the range of 3% to 3.423%.

Meanwhile, BTr only borrowed 2.9 billion pesos on the 182-day debt securities of the 5 billion peso program, even with total tenders reaching 8.89 billion pesos. The average tenor rate rose 17.6 basis points to 3.083%, with the government accepting offers ranging from 2.99% to 3.148%.

On the other hand, the 25-year benchmark papers to be offered on Tuesday were issued on December 16, 2010 following a government bond swap program, the first time a swap was offered for the duration. The issue reached 166.22 billion pesos, exceeding the initial program of 30 billion pesos, and was allocated at a coupon rate of 8.125%.

The Treasury wants to raise 200 billion pesos domestically this month, 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 7.6% of gross domestic product this year. — DGC Robles

Garland K. Long