Government securities set to rise on expected rate hike and inflation


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RATES on government securities should increase this week ahead of the central bank’s planned rate hike and the recentflrationing data that prompted investors to seek higher yields.

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

On Tuesday, the BTr will auction reissued seven-year Treasury bills (T-bonds) with a remaining life of six years and 11 months.

A trader in a Viber message said that the recentflnews data and the upcoming central bank meeting, which is expected to produce a rate hike, were returning themes this week.

“Both of these themes are generally bearish for bonds, so prices become relatively cheaper as yields rise,” the trader said, adding that investors remained cautious amid expectations of an imminent rate hike by the bank. central.

The prime trader expects Treasury yields to rise 5-10 basis points (bps), while seven-year bonds reissued to the offer range between 6.540% and 6.550%.

The chief economist of Rizal Commercial Banking Corp. Michael L. Ricafort sees Treasury yields moving sideways with a slight upward bias, comparable to secondary market yields, which rose after the recentflration data.

He said the latest increase in secondary market yields was “also due to rising transport costs and the minimum jeepney fare that could add toflation.

Implementation of a daily minimum wage hike in 14 regions and an increase from P1 to a minimum of P10 in utility jeepney fares in Metro Manila, Central Luzon, Calabarzon and Mimaropa this month will probably add toflshareholder pressures.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said last month that the central bank would likely raise the key interest rate by another 25 basis points at the next Monetary Board meeting on June 23. , after rising at the May 19 meeting to curb growing inflationary pressures.

Last week, Monetary Board member and new BSP chief Felipe M. Medalla said in a Bloomberg interview that policymakers were “almost” certain to raise rates at the next meeting, while a “90% probability” looms for another increase when they are further examined. August 18.

Title inflation for May was recorded at 5.4%, above the BSP’s target range of 2-4%, and matching the median inflprediction of economists in a recent Business world survey. Much of the inflation came from soaring commodity and fuel prices.

May’s headline printing was also the fastest since the 6.1% seen in November 2018.

Since the beginning of the year, inflation averaged 4.1%, below the central bank’s forecast of 4.6%, but above its target of 2-4% for the year.

Meanwhile, a second trader also sees rates moving sideways with a slight upward bias as the market remains cautious at the upcoming Federal Open Market Committee (FOMC) meeting on June 14-15, where its members are expected to increase rates by an additional 50 basis points. .

In the secondary market on Friday, 91-day, 182-day and 364-day Treasury bills were quoted at 1.4863%, 1.8785% and 2.1071%, respectively, based on PHP Bloomberg valuation benchmark rates. published on the Philippine Dealing System website.

Meanwhile, the seven-year bond reached a yield of 6.4506%.

Last week, the BTr only raised P13.924 billion from its Treasuries bid, despite total bids reaching P42.654 billion, nearly triple the P15 billion on offuh.

Broken down, the government fully granted the 91-day debt securities, raising 5 billion pesos as expected as the term attracted 20.790 billion pesos in bids. The average yield over the three-month term was 1.44%, 21.5 basis points lower than the 1.46% previously seen.

BTr also raised 5 billion pesos as expected from 182-day treasury bills, with total tenders reaching 15.02 billion pesos. The average rate for six-month debt securities rose 2.2 basis points to 1.834% from 1.812% at the previous auction.

Finally, the Treasury partially allocated its offer of one-year securities, raising only 3.924 billion pesos against its 5 billion peso program, even as offers reached 6.84 billion pesos. The average one-year Treasury bill rate rose 36.4 basis points to 2.297%, from 1.933% quoted for the tenor’s last successful allotment on May 2.

Meanwhile, the last time the government proposed the reissue of seven-year bonds to be auctioned off Tuesday was May 17, when it raised only 20.10 billion pesos. The bonds carry a coupon rate of 6.5%, with the BTr capping bids at 6.6%.

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. — Tobias Jared Tomas

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