Treasuries and bonds could hit higher rates with rising inflation

BW FILE PHOTO

GOVERNMENT SECURITIES to be auctioned this week could generate higher returns as investors want higher yields as inflation apparently rose last month.

The Treasury Board (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 seven-year Treasury bonds (T-bonds) reissued with a remaining life of three years and eight months.

Traders said government debt on offer this week could be priced at higher rates as inflation is expected to have topped 5% in May.

“With the Consumer Price Index (CPI) set to print 5.4% for May, we could see a cautious market next week,” one trader said in an email.

The IfThe first trader said the average rate for reissued seven-year Treasury bills would likely be between 5.3% and 5.5%.

“Expect upward pressure on rates to continue, but the extent will become clearer once CPI data for May is released on Tuesday,” a second trader said via Viber, noting that the data will influence the central bank’s rate hike path going forward.

The second trader added that the results of the Treasury bill auction will dictate the tone of Tuesday’s T-bond offis lying.

Meanwhile, Rizal Commercial Banking Corp. chief economist Michael L. Ricafort said Treasury bill rates could rise slightly to track yield moves in the secondary market after data was released showing that the stock of national government debt hit a new high in May.

The Philippine Statistics Authority will release the Mayflinformation report of Tuesday, June 7.

Analysts said inflation likely accelerated to above 5% last month as food and oil prices continued to climb due to disruptions in global supply chains.

A Business world poll of 16 analysts gave a median estimate of 5.4% for May inflation, corresponding to the midpoint of the 5% to 5.8% outlook of Bangko Sentral ng Pilipinas (BSP).

If realized, it would be faster than April’s 4.9% and May 2021’s 4.1%. It would also be well above the central bank’s 2-4% target for the year.

Title infllast reached the 5% level in December 2018 and stood at 5.2% that month.

BSP Governor Benjamin E. Diokno Last month, the central bank said it was likely to raise key interest rates by another 25 basis points (bps) in its next policy review on June 23, following a hike of the same magnitude in its May 19 meeting to curb rising inflationary pressures.

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

Meanwhile, national government debt hit a new high of 12.76 trillion pesos in May due to loans for the state’s pandemic response.

In the secondary market on Friday, 91-day, 182-day and 364-day Treasury bills were quoted at 1.4464%, 1.8098% and 2.2203%, respectively, based on the PHP BVAL benchmark rates published on the Philippine Dealing System website.

Meanwhile, the four-year bond, the benchmark closest to the remaining life of the reissued seven-year securities that will be auctioned on Tuesday, reached a yield of 5.3559%.

Last week, the BTr partially allotted its treasury bill offer despite tenders reaching 42.88 billion pesos, nearly triple the 15 billion pesos on offer.

Stalled, the government fully allocated the 91-day treasury bills, raising 5 billion pesos as expected as tenders for the term reached 22.34 billion pesos. The average yield on three-month debt securities was 1.46%, 21.5 basis points lower than the 1.675% previously seen.

BTr also raised 5 billion pesos as expected from the 182-day securities while offers for the duration reached 14.96 billion pesos. The average six-month Treasury bill rate was 1.812%, down 8 basis points from the 1.892% at the previous auction.

Finally, the Treasury rejected all bids for its offer of 5 billion pesos of one-year Treasury bills even as offers reached 5.58 billion pesos. If the government had granted a full allocation, the average rate for the one-year term would have been 2.716%, which is 67.59 basis points higher than the 2.0401% obtained in the secondary market before the auction.

Meanwhile, the last time the government offThe reissued seven-year bonds that will be auctioned on Tuesday took place on January 21, 2020. In this auction, the BTr raised only 27.203 billion pesos from the 30 billion peso program papers despite offers reaching 52.71 billion pesos. . The newspapers earned an average rate of 4.732% and carry a coupon of 6.25%.

BTr wants to raise 250 billion pesos on the domestic market in June, or 75 billion pesos via treasury bills and 175 billion pesos via treasury bonds.

The government borrows from local and external sources to help connect a budget ofIfcit capped at 7.7% of gross domestic product this year. — T. J. Tomas

Garland K. Long