Rates of T-bills, bonds may climb as market awaits Fed, BSP moves

RATES of Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week could rise amid continued uncertainty over the US Federal Reserve’s and the Bangko Sentral ng Pilipinas’ (BSP) next moves.

The Bureau of the Treasury (BTr) will auction off PHP 15 billion in T-bills on Monday, made up of P5 billion each in 91-, 182-, and 364-day papers.

On Tuesday, it will offer PHP 25 billion in fresh 13-year T-bonds.

“Unless the market gets more clarity on the central banks’ coming pause or better yet confirmation, the CPI (consumer price index) data on material disinflation like what we got in March, or the lower-than-expected March US CPI will lack the gravitas to reactivate risk appetite,” Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a report.

“Even the minutes of the FOMC (Federal Open Market Committee) meeting in March did not provide clarity as the Fed expects the banking turmoil to cause a recession, which argues for a pause sooner than later, although the Fed should not be distracted from its primary task of taming inflation by hiking its policy rate,” Mr. Asuncion said.

US CPI climbed 0.1% last month after rising by 0.4% in February.

In the 12 months through March, the CPI increased 5%, the smallest year-on-year gain since May 2021. The CPI rose 6% on a year-on-year basis in February.

The Fed has hiked rates by a total of 475 basis points (bps) since March 2022, bringing its key rate to a range between 4.75% and 5%.

Its next meeting is on May 2-3.

Meanwhile, Philippine headline inflation eased for a second consecutive month in March to 7.6% from 8.6% in February.

For the first quarter, inflation averaged 8.3%, higher than the BSP’s 6% forecast and 2-4% target for the year.

Mr. Asuncion said they expect the BSP to hike rates by another 25 bps in its May 18 meeting to bring the policy rate to 6.5% before pausing.

The Monetary Board has raised benchmark interest rates by 425 bps since May 2022.   

“The BTr’s bond auction results will provide strong guidance on secondary market yields at this time when the BSP and the Fed’s pause is still uncertain,” Mr. Asuncion added.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that T-bill and T-bond rates could track the increases seen at the secondary market.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills went up by 28.95 bps, 11.94 bps, and 0.54 bp week on week to end at 5.4374%, 5.7605%, and 5.9998%, respectively, based on the PHP BVAL Reference Rates data published on the Philippine Dealing System’s website.

The 13-year bond’s yield “could be similar/slightly higher versus the comparable 12-year PHP BVAL yield at 6.24% as of April 14, 2023, which increased week on week by 0.05 bp,” Mr. Ricafort said.

He said demand for the T-bonds on offer could be high due to a large amount of maturing securities in the third week of April, which means increased liquidity in the market.

Last week, the Treasury raised just PHP 13.9 billion from its offer of T-bills, below the PHP 15-billion program, even as total bids reached PHP 21.609 billion.

Broken down, the Treasury borrowed PHP 4.6 billion from the 91-day T-bills, below the PHP 5-billion plan, despite tenders for the tenor reaching PHP 6.744 billion. The average rate of the three-month paper rose by 26.90 bps to 5.314%, with the accepted rates ranging from 5.05% to 5.5%.

The BTr likewise raised only PHP 4.3 billion via the 182-day debt papers, lower than the P5-billion program, with bids at PHP 8.578 billion. The average rate of the six-month T-bill went up by 2.60 bps to 5.7%. Accepted yields were from 5.673% to 5.75%.

Meanwhile, the government made a full PHP 5-billion award of the 364-day securities as demand for the tenor stood at PHP 9.287 billion. The one-year paper was awarded at an average rate of 5.991%, inching up by 1.40 bp the previous week, with accepted rates ranging from 5.95% to 6%.

The Treasury wants to raise PHP 160 billion from the domestic market this month, or P60 billion via T-bills and P100 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 6.1% of gross domestic product this year. — By A.M.C. Sy