Short-term government bond rates seen to rise this week

MANILA, Philippines — Demand and yields for short-dated securities are expected to pick up for the rest of September, reflecting the bond market’s assumption that inflation will remain elevated for the rest of the year.

Bond traders told The STAR they expect rates for the 182-day and 364-day Treasury bills (T-bills) to move sideways like in previous auctions, but project an increase of up to five basis points for the 91-day T-bills due to investor preference for short-dated debt papers.

Likewise, they said investors may demand a hike of up to 33.6 bps for yields from the reissued 10-year Treasury bonds (T-bonds) with a remaining term of nine years and 10 months.

“T-bill rates will generally trade sideways, except for the 91-day tenor where we expect yields to move sideways or increase of up to five basis points. As for the T-bonds, our forecast is that rates will land between 4.15 and 4.25 percent,” a trader said.

The trader said investors will seek increased rates to shield their capital from risks posed by the inflationary surge. Inflation – the average growth in commodity prices – swelled by 4.9 percent in August, hitting the higher end of the Bangko Sentral ng Pilipinas target for the month.

“Demand for safe haven assets will be sustained for the rest of September, especially now that inflation surged by 4.9 percent,” the trader said.

According to another trader, inflationary spikes tend to compel investors to shift their purchasing activities to short-end debt papers to cover for the impact of price pressures.

In spite of this, the trader said rates for both T-bills and T-bonds would settle within the range of the secondary market.

“When inflation rises, it poses risks on long-end bonds. As a result, investors will opt to buy safe haven assets like short-dated securities to protect their capital,” the trader said.