Philippines short-term debt yields rise as Treasury nears P55 billion borrowing target

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Philippines short-term debt yields rise

Highlights

Philippines Bureau of the Treasury raises P54.23 billion in short-term debt, with yields rising on all tenors and total bids topping P104 billion.
Average yields jump to 5.278% for 35-day, 5.992% for 91-day, 6.229% for 182-day, and 6.444% for 364-day bills as market anticipates further rate hikes.
Bangko Sentral ng Pilipinas widely expected to hike policy rate by at least 25 basis points this week, feeding into higher government borrowing costs amid a P418 billion October funding target.

Auction results reflect firmer rate expectations

As reported by BusinessWorld, citing the Bureau of the Treasury, the government makes a partial award of its short-term debt offer on Monday as yields climb across all tenors and investor demand remains strong.

The Treasury borrows P10 billion as planned through 35-day cash management bills after attracting P23.012 billion in bids. The average rate on the one-month paper rises to 5.278% from 5.229% at the last award on Oct. 5, with accepted yields ranging from 5.2% to 5.339%.

For Treasury bills, the government raises P44.23 billion, slightly below the P45 billion target, while tenders reach P69.2 billion. The 91-day debt is fully awarded at P20 billion, with the average yield jumping 14.7 basis points to 5.992% from 5.845% last week. The 182-day T-bill also meets its P15 billion program, and its average yield climbs 5.8 basis points to 6.229% from 6.171%.

The Treasury sells only P9.23 billion of 364-day securities against a P10 billion plan, even as demand totals P12.72 billion. The one-year paper fetches an average rate of 6.444%, up 9.3 basis points from 6.351% previously, with accepted yields ranging from 6.25% to 6.5%.

Policy outlook shapes domestic funding costs

Secondary market reference rates before Monday's auction also point to higher short-dated yields, with the 35-, 91-, 182-, and 364-day bills quoted at 5.3198%, 5.6764%, 6.0671%, and 6.3193%, respectively, based on Treasury data from the PHP Bloomberg Valuation Service Reference Rates.

A trader says the government securities market is quiet as participants stay on the sidelines ahead of the central bank's policy decision on Thursday, while Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort says short-term bill yields rise across all tenors in anticipation of a likely rate increase.

Analysts widely expect the Bangko Sentral ng Pilipinas to deliver a fourth straight 25-basis-point hike this week as inflation pressures remain elevated. A BusinessWorld poll shows 20 of 22 analysts expect the policy rate to rise to 5.25%, while two analysts price in a larger 50-basis-point move to keep the central bank from falling behind the curve.

The Treasury's borrowing calendar remains heavy, with P30 billion in reissued 20-year Treasury bonds due for auction on Tuesday and a total domestic funding target of P418 billion for the month. The government is tapping local and foreign markets to help finance a budget deficit capped at P1.659 trillion, or 5.4% of gross domestic product, this year.

Our earlier article on planned Philippine sovereign bond reforms explained how a new pricing convention for peso-denominated government bonds and the targeted inclusion in J.P. Morgan’s Government Bond Index-EM could improve comparability, liquidity, and broaden the investor base. It also stressed that any sustained benefit to borrowing costs and capital inflows still hinges on factors like global interest rates, exchange-rate expectations, and confidence in fiscal credibility, while deeper capital-market development requires reforms beyond market infrastructure alone.

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