RATES of government securities to be auctioned off this week are expected to move sideways with a slight upward bias on expectations of global monetary tightening.
The Bureau of the Treasury (BTr) will auction off P15 billion in Treasury bills (T-bills) on Monday, or P5 billion each in 91-, 182-, and 364-day securities.
On Tuesday, the BTr will offer P35 billion in reissued 10-year Treasury bonds (T-bonds) with a remaining life of nine years and eight months.
A trader via Viber said that T-bills would move sideways to higher “given hawkish remarks from [the] Fed (US Federal Reserve).”
Rizal Commercial Banking Corp. Michael L. Ricafort likewise said in a Viber message that T-bills would move sideways to “slightly higher,” amid Fed expectations of greater policy tightening to combat inflation.
A half-point interest rate increase “will be on the table” when the Fed meets on May 3-4 to approve the next in what is expected to be a series of rate increases this year, US Fed Chair Jerome H. Powell said on Thursday in comments that pointed to an aggressive set of actions ahead, Reuters reported.
With inflation running roughly three times the Fed’s 2% target, “it is appropriate to be moving a little more quickly,” Mr. Powell said in a discussion of the global economy at the meetings of the International Monetary Fund.
A Reuters poll two weeks ago showed analysts expect the Fed to make two back-to-back 50-basis-point (bp) interest rate hikes in May and June to bring down runaway inflation.
The Fed’s policy-setting Federal Open Market Committee began to unwind its pandemic-driven easy stance in March when it hiked key rates by 25 bps to tame inflation.
Meanwhile, the trader said the reissued 10-year bonds could fetch an average rate within 6-6.5%.
“The higher forecast is due to [the] BTr’s awarding behavior in last week’s seven-year auction,” the trader said. “Market players are not aggressive on that [10-year bond] space given rate hike expectations.”
The BTr made a full award of the reissued seven-year T-bonds it offered last week at a higher average rate due to inflation fears and hawkish comments from Fed policy makers.
The Treasury raised P35 billion as programmed from the reissued seven-year bonds it auctioned off on Tuesday, with bids reaching P47.336 billion.
The debt papers, which have a remaining life of six years and three months, were awarded at an average rate of 5.779%, up by 17.8 bps from the 5.601% fetched when they were last sold on March 22. The bonds have a coupon rate of 3.75%.
The average rate was also higher than the 5.6836% quoted for the seven-year tenor at the secondary market prior to the auction, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.
Mr. Ricafort said some positive leads that could cause rates to decline would be the drop in oil prices, the government’s latest $559-million samurai bond and $2.25-billion global sustainability bond issuances, as well as the seasonal increase in the government’s revenue collections in April due to the filing of income tax returns, as these would reduce the country’s need to borrow for now.
Oil slipped on Friday, posting a weekly loss of nearly 5%, on prospects of weaker global growth, higher interest rates and amid coronavirus disease 19 (COVID-19) lockdowns in China, even as the European Union considers a ban on Russian oil.
Brent crude dropped by $1.68 or 1.6% at $106.65 a barrel, while US crude declined by $1.72 or 1.7% to $102.07.
At the secondary market on Friday, the 91-, 182-, and 364-day securities fetched rates of 1.2466%, 1.5262%, and 1.9169% respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.
Meanwhile, the 10-year bonds were quoted at 6.0740%.
The government raised P15 billion as planned via T-bills at its auction last week, as total tenders reached P54.12 billion, nearly four times as much as the program.
Broken down, the BTr raised P5 billion as planned via the 91-day instruments as bids reached P26.23 billion. The average rate of the three-month T-bill went up by 2.1 bps to 1.25% from 1.223%.
The government also made a full P5-billion award of the 182-day securities as the offer attracted P15.85 billion in bids. The average rate of the six-month tenor rose by 1.3 bps to 1.568% from the 1.555% fetched at the previous auction.
Lastly, the Treasury borrowed P5 billion as programmed from the 364-day debt papers from P11.954 billion in tenders. The average rate of the one-year paper went up by 2 bps to 1.877% from 1.857% a week earlier.
Meanwhile, the last time the government auctioned off the 10-year bonds on offer on Tuesday was on March 29 where it raised P35 billion as programmed as bids reached P57.915 billion. The tenor fetched an average rate of 6.092%, up by 99.9 bps from the 5.093% fetched when they were last offered on Feb. 8. The bonds carry a coupon rate of 4.875%.
The BTr wants to raise P200 billion from the domestic market in April, or P60 billion through T-bills and P140 billion through T-bonds.
The government borrows from local and external sources to plug a budget deficit capped at 7.7% of gross domestic product this year. — Tobias Jared Tomas with Reuters