Jitters over Ukraine, US Fed hike push T-bill rates up

AFP FILE PHOTO

MANILA, Philippines—T-bill rates rose across-the-board on Monday (Feb. 14), driven mainly by two factors that are making local creditors jittery—the Russian threat to invade Ukraine and upsized rate increase by the US Federal Reserve next month.

The Bureau of the Treasury nonetheless fully awarded the P15 billion — P5 billion for each of the three tenors — in short-dated IOUs it auctioned off, whose bids amounted to P41.2 billion or 2.7 times more than the total offering.

The average rate for the benchmark 91-day treasury bills increased to 0.81 percent from 0.71 percent last week. The 182-day securities fetched 1.066 percent, up from 1.022 percent previously.

The 364-day debt paper was awarded at an annual rate of 1.475 percent, up from 1.408 percent last week.

“Rates moved up with heightened concerns on Ukraine and speculation of the Fed hiking rates by as much as 50 basis points (bps) in March,” National Treasurer Rosalia de Leon said.

The world’s watching if border tensions would escalate to Russia’s invasion of Ukraine. In the US, some economists expect the Fed may turn more aggressive in its forthcoming rate hikes following a 40-year high inflation rate in January.

Amid these external upside risks to bond rates, the Treasury will offer a minimum of P30 billion in five-year retail treasury bonds (RTBs) starting Tuesday (Feb. 15) — the 27th overall of the Philippine government as well as the Duterte administration’s 10th and possibly last before the next President assumes office in July 2022.

The latest RTB offering will be until Feb. 28. Similar to previous offerings, RTBs will be available at a minimum of P5,000 and multiples thereof to retail creditors through selling agent-banks as well as mobile apps and online channels. Settlement will be on March 4.

The Treasury will also exchange the new bonds with two bond series maturing in March and July 2022.

Before 2021 ended, the Treasury raised P360 billion from 5.5-year RTBs.

De Leon said that while the Treasury did not have a target amount to be raised from the upcoming RTB issuance, peso-denominated debt securities “should differentiate us from the US dollar and euro given inflation and liquidity dynamics.”

Headline inflation was expected to stay within the Bangko Sentral ng Pilipinas’ (BSP) 2 to 4 percent target range this year as price pressures from food supply bottlenecks ease. The domestic financial system, meanwhile, remained awash in cash.

Also, “the BSP still has buffers to deploy to support recovery,” De Leon added.

In a statement on Monday, the BSP said it was “keen on maintaining its policy support to sustain economic recovery,” with P2.3-trillion worth of liquidity-easing measures—equivalent to 12.03 percent of gross domestic product (GDP)—extended to the economy to date in light of the prolonged COVID-19 pandemic.

“The BSP’s accommodative monetary policy and extraordinary measures ensured adequate liquidity in the financial system that accelerated domestic economic activity amid the pandemic,” Governor Benjamin Diokno said at the JP Morgan Philippine Conference 2022 held last month.

“The BSP remains steadfast in striking a balance between providing adequate stimulus to the economy and preventing buildup of inflationary pressures and risks to price and financial stability,” Diokno added.

The BSP expects the year-on-year rate of increase in prices of basic commodities to average 3.4 percent this year and 3.2 percent next year.

TSB