Treasury bill, bond rates may climb as Fed remains hawkish

RATES of Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week could rise amid hawkish signals from the US Federal Reserve.

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 five-year T-bonds with a remaining life of four years and 11 months.

T-bill and T-bond rates could track the increase in secondary market yields last week after Fed Chair Jerome H. Powell signaled that the US central bank is unlikely to cut borrowing costs at their March meeting, 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 2.02 basis points (bps), 6.18 bps, and 0.32 bp week on week to end at 5.4422%, 5.8126%, and 6.044% respectively, based on PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website.

The yield on the five-year bond likewise rose by 1.01 bps to end at 6.0864%.

The Federal Open Market Committee last week held its target rate steady at the 5.25-5.5% range for a fourth straight meeting.

It raised borrowing costs by a total of 525 bps from March 2022 to July 2023.

Mr. Powell, speaking after the end of a two-day policy meeting, declined to declare victory in the US central bank’s two-year inflation fight, vouch that it had achieved a sought-after “soft landing” for the economy or promise that rate cuts would come as soon as the Fed’s March 19-20 meeting, as investors had hoped in the run-up to last week’s policy decision, Reuters reported.

Mr. Powell said rate cuts would come once the Fed becomes more secure that inflation will continue to decline from a level it still characterizes as “elevated,” at least on a one-year basis, with the personal consumption expenditures price index, a key measure used by policymakers, at 2.6% on an annual basis as of December.

Market expectations of a near-term rate cut dimmed, with futures tied to the Fed’s main policy rate reflecting a 70% chance of the central bank lowering borrowing costs at its May 1 meeting, from over 90% on Thursday, according to the CME FedWatch Tool. The probability of a March cut stood at about 20%, from just under 50% a week ago.

Last week, the BTr raised PHP 15 billion as planned from its offering of T-bills as total bids reached PHP 38.137 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 papers as tenders for the tenor reached PHP 11.46 billion. The average rate of the three-month T-bill rose by 9.2 bps from the previous week to end at 5.398%. Accepted rates ranged from 5.300% to 5.424%.

The government also raised PHP 5 billion as planned from the 182-day securities as bids stood at PHP 12.37 billion. The average rate for the six-month T-bill was at 5.81%, up by 4.4 bps week on week, with accepted rates at 5.795% to 5.843%.

Lastly, the BTr borrowed the programmed PHP 5 billion via the 364-day debt paper as demand for the tenor totaled PHP 14.307 billion. The average rate of the one-year T-bill went up by 3.9 bps to 6.076%. Accepted yields were from 6.02% to 6.10%.

Meanwhile, the reissued T-bonds to be offered on Tuesday were first offered on Jan. 9, where the government raised PHP 30 billion as planned, with the papers fetching a coupon rate of 6.125% and an average rate of 6.073%.

The BTr plans to raise PHP 210 billion from the domestic market this month, 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 with Reuters