T-bill, bond rates may rise before Fed meet

Rates of Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week could rise as the market awaits the US Federal Reserve’s policy meeting.

The Bureau of the Treasury (BTr) will auction off PHP 15 billion in 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 three-year T-bonds with a remaining life of two years and 11 months.

Rates of T-bills and T-bonds could track the increases seen at the secondary market last week after the Bangko Sentral ng Pilipinas (BSP) chief said they could keep benchmark borrowing costs steady at their meeting next month, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

At the secondary market on Friday, rates of the 91-, 182-, and 364-day T-bills went up by 6.33 basis points (bps), 8.53 bps, and 4.17 bps week on week to end at 5.422%, 5.7508%, and 6.0408% respectively, based on PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website.

The yield for the three-year bond likewise rose by 6.46 bps to 6.0046%.

BSP Governor Eli M. Remolona, Jr. said last week that the central bank is unlikely to cut rates at their first policy meeting of the year amid lingering upside risks to inflation.

“At this point, a rate cut is not likely (on) Feb. 15,” Mr. Remolona said in mixed English and Filipino, adding that the “numbers we are seeing” show the need to keep policy settings sufficiently tight for some time.   

The Monetary Board hiked borrowing costs by 450 bps from May 2022 to October 2023, bringing the policy rate to a 16-year high of 6.5%.

Meanwhile, the three-year bonds could see good demand as the market awaits the Fed’s policy decision this week, a trader said in an e-mail.

The trader sees the T-bonds on offer fetching rates from 5.95% to 6.05%.

The US central bank is widely expected to keep benchmark rates at the 5.25-5.5% range for a fourth straight meeting during its Jan. 30-31 review.

The Federal Open Market Committee raised borrowing costs by a cumulative 525 bps from March 2022 to July 2023.

Last week, the BTr raised PHP 15 billion as planned via its offering of T-bills as total bids reached PHP 34.985 billion or more than twice the amount on the auction block.

Broken down, the Treasury made a full PHP 5-billion award of the 91-day T-bills as tenders for the tenor reached PHP 11.94 billion. The average rate for the three-month paper went up by 8 bps to 5.306% from the previous week. Accepted rates ranged from 5.275% to 5.5.35%.

The government also raised the programmed PHP 5 billion from the 182-day securities as bids for the tenor reached PHP 10.97 billion. The average rate for the six-month T-bill was at 5.766%, up by 8.1 bps from the prior week’s auction, with accepted rates at 5.743% to 5.795%.

Lastly, the BTr borrowed the programmed PHP 5 billion via the 364-day debt paper as demand for the tenor stood at PHP 12.075 billion. The average rate of the one-year T-bill rose by 3.8 bps to 6.037%. Accepted yields were from 6% to 6.075%.

Meanwhile, the reissued T-bonds to be offered on Tuesday were first offered on Jan. 3, where the government raised PHP 30 billion as planned at a coupon rate of 6% and an average rate of 5.9%.

The Treasury plans to raise PHP 195 billion from the domestic market this month, or PHP 75 billion via T-bills and PHP 120 billion through T-bonds.

Last week’s T-bond auction was the last for January. It raised PHP 130 billion through bonds this month, higher than the PHP 120-billion program, as it held tap facility auctions to accommodate strong demand for long-tenored papers.

Meanwhile, this week’s T-bills offering will be the last one for this month. The BTr has so far raised PHP 66 billion out of the PHp 75-billion borrowing program for T-bills.

For February, the BTr plans to raise PHP 210 billion from the domestic market, or PHP 60 billion in T-bills and PHP 150 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 5.1% of gross domestic product this year or PHP 1.39 trillion. — A.M.C. Sy