Rates on the Treasury bills (T-bills) and Treasury bonds (T-bonds) scheduled for auction this week could end mixed, as the worsening Iran war and its impact on oil prices add to domestic inflation concerns.

The Bureau of the Treasury (BTr) is set to offer P50 billion in T-bills on Monday. The sale will consist of P20 billion each in 91-day and 182-day papers, and P10 billion in 364-day debt. The Treasury will not offer cash management bills this week.

On Tuesday, the government aims to raise as much as P50 billion through a dual-tenor T-bond offering. This will include P30 billion in reissued seven-year T-bonds with a remaining life of three years and two months, as well as P10 billion to P20 billion in 20-year notes with a remaining life of 17 years and 10 months.

The auctions will help show how investors are pricing near-term funding needs against longer-term inflation and rate risks. Government securities also serve as benchmarks for other peso debt instruments, so auction results are closely watched beyond the Treasury’s borrowing program.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that rates for this week’s T-bill and T-bond offerings may follow the mixed week-on-week movements seen in the secondary market. Shorter tenors ended mostly lower, while yields at the belly and long end of the curve rose after global crude oil prices climbed again last week amid escalating hostilities in the Gulf region.

He said the oil price increase, along with the peso’s latest decline, adds to domestic inflation risks.

“Risk-off sentiment continued to dominate GS (government securities) [on Friday] as oil prices surged and peso reached a record low. Inflationary pressures continue to worsen as Middle East war intensifies with Red Sea attacks,” a trader said in an e-mail.

The trader said these developments pushed yields higher at the belly and long end of the curve, a trend that could continue this week. “Market appetite shall be tested again via the dual-tranche auction, but we expect yields to reprice higher on lack of good news locally and abroad.”

Philippine headline inflation has been above the Bangko Sentral ng Pilipinas’ (BSP) 2%-4% tolerance band since March, reflecting the energy price shock caused by the Middle East conflict.

Inflation averaged 4.8% in the first half. The BSP has said inflationary pressures remain elevated because of second-round price effects stemming from the war. Higher fuel costs can feed into transport and production expenses, while a weaker peso can make imported goods and commodities more expensive.

At the secondary market on Friday, the yields on the 91-day and 182-day T-bills rose by 0.27 basis point (bp) and 5.1 bps week on week to close at 5.0628% and 5.4814%, respectively, according to the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System website. The yield on the 364-day debt, meanwhile, fell by 1.15 bps to 5.9696%.

The seven-year bond yield jumped by 24.38 bps week on week to end at 7.5446% on Friday. The three-year paper, the tenor closest to the remaining life of the issue scheduled for Tuesday’s auction, rose by 21.52 bps to close at 7.0351%.

For the 20-year tenor, the yield surged by 40.29 bps to end at 7.4354%.

Last week, the BTr raised P50 billion as planned from its T-bill auction, with total tenders reaching P138.41 billion.

The Treasury borrowed P20 billion through the 91-day T-bills. The three-month paper fetched an average rate of 5.104%, up by 0.7 bp from the previous auction. Accepted bids carried yields ranging from 5.054% to 5.118%.

For the 182-day debt, the government also raised P20 billion. The six-month T-bill’s average yield was 5.685%, down by 2.2 bps week on week. Awarded tenders had rates from 5.574% to 5.71%.

The BTr also sold P10 billion in 364-day securities. The one-year paper fetched an average rate of 5.966%, slipping by 0.6 bp. Accepted bid yields ranged from 5.54% to 5.981%.

The reissued seven-year bond to be auctioned this week was last offered on June 30, when the government raised P30 billion as planned at an average rate of 6.58%, below its 7% coupon.

The 20-year note was last sold on May 5, when the BTr raised only P8.718 billion, short of its P10-billion target, as the average rate reached 7.705%, well above the 6.875% coupon.

For this month, the BTr plans to raise P410 billion from the domestic market, consisting of P250 billion through T-bills and P160 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped this year at P1.659 trillion, or 5.4% of gross domestic product. — A.M.C. Sy