Higher yields seen for government securities

MANILA, Philippines — The Bureau of the Treasury may have to reject bids in next week’s auction of government securities as investors will definitely ask for higher rates following the aggressive move of the central bank.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said the government would face high rate demand from investors next week.

The Treasury is scheduled to raise P15 billion in short-dated T-bills on Monday and P35 billion in 10-year T-bonds on Tuesday.

“Short-term local interest would definitely go up to reflect the surprise 75 basis-point rate hike to 3.25 percent effective immediately, considering that they are all still way below inflation, given the steep local yield curve where long-term bond yields have been elevated at pre-pandemic levels recently,” Ricafort said in a Viber message.

The Bangko Sentral ng Pilipinas surprised the market with a 75-basis-point increase after back-to-back hikes in May and June.

The policy rate is now back to its March 2020 level. The Monetary Board is already expected to deliver another 50-basis-point rate hike by Aug.18.

The higher local policy rate is already expected to increase financing and borrowing costs of the government, as well as households, businesses, and other institutions.

The Treasury may choose not to award T-bills and T-bonds next week.

“It is possible. The Treasury may always opt to reject unusually high bid yields, or may allow gradual increase in the auction yields to reflect the latest realities on the policy rates and inflation,” Ricafort said.

Nonetheless, Ricafort said the government may still be able to raise its planned P200 billion borrowing program for the month.

“Short-term policy rates have been way below inflation rate for quite some time already, so short-term interest rates remained relatively lower compared to past economic cycles vis-a-vis inflation,” he said.

Last Monday, the Treasury only made a partial award of P13.16 billion of the P15 billion in T-bills on offer as investors demanded higher yields.

Rates for the 91-day T-bills went up by 2.4 basis points to 1.876 percent while yields for the 182-day short-dated debt papers swelled by 51 basis points to 2.907 percent.

Offers for the 364-day averaged at 2.981 percent, rising by 28.8 basis points. It even reached a high of 3.143 percent.

On the other hand, the Treasury fully awarded P35 billion worth of reissued seven-year T-bonds on offer but with a higher average yield of 6.76 percent.