Rates of T-bills, bonds on offer to climb on faster Sept. inflation

RATES OF government securities on offer this week will likely climb anew, with bids for the fiveyear Treasury bonds (T-bond) expected to be rejected, as investors price in the elevated September inflation print.

The Bureau of the Treasury (BTr) is offering P15 billion worth of Treasury bills (T-bill) today. Broken down, the government plans to raise P4 billion through the three-month debt, P5 billion through the six-month papers, and another P6 billion in oneyear bills.

The Treasury will also auction off P15 billion worth of reissued five-year T-bonds with a remaining life of four years and four months tomorrow.

Bond traders said before the weekend that the T-bills on offer on Monday will likely fetch higher yields from the previous auction.

“The rates will climb by 10-20 basis points (bp) across all tenors from the previous auction,” the trader said in a phone interview.

Another trader, meanwhile, said the T-bills will attract bids with rates 15 bps higher from last week’s auction.

The Treasury awarded just P9.2 billion out of the the P15 billion worth of T-bills it intended to borrow last Monday, even as tendered bids reached P17.1 billion, as rates of the securities climbed past the government’s benchmarks.

Rates on the 182- and 364day papers rose to 5.206% and 5.648%, respectively, while the Treasury rejected all tenders for the 91-day debt.

For the five-year bonds, the first trader said the papers may fetch an average rate between 7% and 7.5%.

“It’s possible that the BTr would reject again bids on the five-year bonds since the rates are higher than in the secondary market. They might reject it,” the trader added.

During the last five-year bond auction on Aug. 14, the Treasury opted to accept all bids, raising P15 billion as planned out of tenders reaching P24.5 billion. It fetched an average rate of 5.902%, higher than the 5.5% coupon.

At the secondary market before the weekend, the three- and six-month papers fetched rates of 4.7167% and 5.4516%, respectively, while the one-year T-bills was quoted at 5.6911%.

Meanwhile, the five-year Tbond fetched a rate of 7.1018%.

The traders said market players would price in the elevated inflation print for September.

Although slower than the 6.8% market consensus and central bank estimate, inflation surged anew in September to a fresh nine-year high of 6.7% as the strong typhoon last month worsened supply issues for rice and other crops.

Both the President’s economic team and the Bangko Sentral ng Pilipinas (BSP) believe inflation will be on a downtrend following the multiyear high last month. However, market watchers believe another interest rate hike is warranted to bring inflation within the 2-4% target.

“The inflation print has raised the possibility of another rate hike by next month,” the first trader said.

The BSP has raised its benchmark rates by a cumulative 150 bps since May.

The Treasury is raising P270 billion from the domestic market this quarter through auctions of securities, offering P180 billion in T-bills and another P90 billion in T-bonds.

The government plans to borrow P888.23 billion this year from local and foreign sources to fund its budget deficit, which is capped at 3% of the country’s gross domestic product.