T-bill, bond rates may climb to track secondary mart, US yields

Rates of Treasury bills and bonds on offer this week could climb further due to an increase in US yields following hawkish signals from the US Federal Reserve.

The government will auction off PHP 15 billion in Treasury bills (T-bills) on Monday, or PHP 5 billion each in 91-, 182- and 364-day papers.

On Tuesday, it will offer PHP 30 billion in reissued 10-year Treasury bonds (T-bonds) with a remaining life of nine years and 10 months.

T-bill and bond yields may track the increases seen at the secondary market on Friday amid elevated global crude oil prices due to worries that the Israel-Palestine war may escalate, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills went up by 13.93 basis points (bps), 1.96 bps, and 15.33 bps week on week to end at 6.0104%, 6.1654%, and 6.4618%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website.

The 10-year bond rose by 6.42 bps week on week to yield 6.6170%.

Yields rose last week following the increase in benchmark US Treasury rates due to hawkish signals from US Federal Reserve Chair Jerome H. Powell, Mr. Ricafort added.

On Thursday, the 10-year US Treasury yield briefly crossed 5% following hawkish remarks by Mr. Powell, while the Middle East conflict kept investors jittery, Reuters reported.

Speaking at the Economic Club of New York on Thursday, Mr. Powell said the US economy’s strength and continued tight labor markets could require tougher borrowing conditions to control inflation.

The Fed kept its key rate unchanged at the 5.25% to 5.5% range at its meeting last month.

It has hiked rates by a cumulative 525 bps since it began its tightening cycle in March last year.

The Federal Open Market Committee will next meet on Oct. 31 to Nov. 1 to review policy.

T-bill and T-bond rates could rise due to expectations that inflation could remain above the central bank’s 2-4% target next year, a trader said in an e-mail. The trader sees the 10-year bond’s yield ranging from 6.875% to 7.0%.

Minutes of the Bangko Sentral ng Pilipinas’ Sept. 21 meeting released last week said the Philippines may miss its 2-4% annual inflation target for a third straight year in 2024.

Last week, the Bureau of the Treasury (BTr) raised just P11.947 billion via its offering of T-bills, short of the P15-billion program, even as total bids reached P19.371 billion.

Broken down, the Treasury borrowed only PHP 3.637 billion via the 91-day T-bills, below the PHP 5-billion offer, even as tenders for the tenor reached PHP 5.137 billion. The average rate of the three-month paper rose by 18.4 bps to 5.99%. Accepted rates ranged from 5.85% to 6.10%

The government raised just PHP 3.31 billion from the 182-day securities, short of the P5-billion program, despite bids for the tenor reaching P6.52 billion. The average rate for the six-month T-bill was at 6.207%, up by 9.2 bps, with accepted rates at 6.125% to 6.25%.

Meanwhile, the BTr made a full PHP 5-billion award of the 364-day debt papers as demand for the tenor reached PHp 7.714 billion. The average rate of the one-year T-bill rose by 8.3 bps to 6.388%. Accepted yields were from 6.325% to 6.438%.

On the other hand, the reissued 10-year bonds to be offered on Tuesday were last auctioned off on Sept. 19, where the government raised the planned PHP 30 billion, with the papers fetching an average rate of 6.42%.

The BTr wants to raise PHP 150 billion from the domestic market this month, or PHP 60 billion via T-bills and PHP 90 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. — Aaron Michael C. Sy with Reuters