UMVA has learned that a significant surge in Treasury bill and bond yields is expected this week, with long-term rates potentially breaching the 8% mark. This development comes as the Bangko Sentral ng Pilipinas (BSP) chief leaves the door open for an off-cycle rate hike to combat rising inflation.
The Bureau of the Treasury is set to auction off up to P38 billion in Treasury bills on Monday, consisting of P12 billion to P15 billion in 91-day papers, P10 billion to P13 billion in 182-day securities, and P7 billion to P10 billion in 364-day debt. This move is likely to be closely watched by investors and market analysts.
On Tuesday, the government aims to raise up to P50 billion from a dual-tenor Treasury bond offering, with P20 billion to P30 billion in reissued seven-year bonds and P10 billion to P20 billion in 10-year notes. The yields on these bonds could track the week-on-week increase in most secondary market rates.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort noted that T-bill and T-bond yields could rise after the BSP chief hinted at an off-cycle rate hike. A trader also stated that the 10-year bonds could fetch rates from 7.95% to 8.25%, indicating a potential breach of the 8% mark.
In the secondary market on Friday, yields on the 91-, 182-, and 364-day T-bills increased by 14.52 basis points, 16.79 basis points, and 3.94 basis points, respectively. The seven-year bond and 10-year debt also saw their yields rise, with the 10-year debt's yield increasing by 13.1 basis points to 7.7461%.
BSP Governor Eli M. Remolona, Jr. stated that the Monetary Board is considering more aggressive policy action to curb spiraling prices, citing the ongoing Middle East conflict as a factor stoking inflation. He mentioned the possibility of a second straight rate hike, possibly even before the scheduled June 18 meeting.
The BSP delivered its first rate increase in over two years on April 23, raising benchmark borrowing costs by 25 basis points to 4.5%. Inflation has been above the BSP's 2%-4% target since the conflict began, with April's headline print reaching an over three-year high of 7.2%.
Last week, the Bureau of the Treasury raised only P25.41 billion via T-bills, falling short of the P30-billion plan. The government borrows from local and foreign sources to fund its budget deficit, which is capped at P1.61 trillion or 5.3% of gross domestic product this year.
UMVA can exclusively reveal that the Treasury's borrowing plans for the month include raising P268 billion from the domestic market, with P128 billion via T-bills and P140 billion through T-bonds. This significant borrowing plan is likely to have a substantial impact on the local market.
