T-bill, bond rates to rise as BSP, Fed stay hawkish

Rates of Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week are expected to rise amid expectations of higher for longer yields at home and in the United States (US) due to elevated inflation.

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

On Tuesday, it will offer PHP 30 billion in reissued 20-year T-bonds with a remaining life of 14 years and nine months.

T-bill and T-bond rates may climb to track the rise in secondary market yields last week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Secondary market rates climbed due to expectations of delayed rate cuts by both the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) amid sticky inflation, the first trader said in an e-mail.

A second trader said T-bill rates may go up by 10-20 basis points (bps), while the reissued 20-year bonds may fetch yields of 6.57% to 7%.

Meanwhile, a third trader said the bonds on offer this week could fetch rates of 6.7% to 6.9%.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills went up by 2 bps, 0.27 bp and 4.57 bps week on week to end at 5.7727%, 5.8969%, and 6.0514%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website.

The 20-year bond likewise climbed by 52.49 bps week on week to close at 6.8021%.

Inflation is proving to be a stickier problem than US central bank officials had anticipated it would be just a couple of months ago, while other measures of the economy show little signs of slowing down. That combination has pushed the anticipated start of an easing cycle further down the road, Reuters reported.

US consumer price index (CPI) data came in stronger than expected in March, prompting a broad resetting of expectations for when the Fed will be able to cut rates this year. Financial markets are now pricing in a July or September start to Fed rate cuts, versus an earlier view of June.

The CPI rose 0.4% last month after advancing by the same margin in February, the Labor department’s Bureau of Labor Statistics said.

In the 12 months through March, the CPI increased 3.5%, the most since September. The CPI was also boosted by last year’s low reading dropping out of the calculation. It rose 3.2% in February. Economists polled by Reuters had forecast the CPI gaining 0.3% on the month and advancing 3.4% year on year.

Meanwhile, BSP Governor Eli M. Remolona, Jr. last week said they could begin their policy easing cycle later than initially expected as they have become “more hawkish than before” due to persistent upside risks to inflation stemming from higher food and transport costs.

He said they could cut rates by 25 bps in the third quarter if inflation is within target and economic growth is weak.

However, policy easing could start as late as the first quarter of 2025 if inflation risks persist, he said.

The Monetary Board kept the target reverse repurchase rate unchanged at a near 17-year high of 6.5% at its meeting on Monday, as expected by all 16 analysts in a BusinessWorld poll. Rates on the overnight deposit and lending facilities were likewise kept at 6% and 7%, respectively. 

The central bank hiked borrowing costs by 450 bps from May 2022 to October 2023 to help bring down elevated inflation.

Philippine headline inflation picked up to 3.7% year on year in March from 3.4% in February. This was slower than the 7.6% clip in the same month last year.

Still, this was within the BSP’s 3.4-4.2% forecast for the month and was slightly below the 3.8% median in a BusinessWorld poll. This also marked the fourth straight month that the CPI was within the central bank’s 2-4% target.

For the first quarter, headline inflation averaged 3.3%, below the BSP’s baseline forecast of 3.8% and risk-adjusted forecast of 4%.

Last week, the BTr raised PHP 15 billion as planned from its T-bill offer as total bids reached PHP 39.939 billion, or more than twice the amount on the auction block.

Broken down, the Treasury borrowed PHP 5 billion as programmed from the 91-day T-bills as tenders for the tenor reached P10.333 billion. The three-month paper was quoted at an average rate of 5.772%, 6.8 bps higher from the previous week. Accepted rates ranged from 5.698% to 5.8%.

The government likewise made a full PHP 5-billion award of the 182-day securities, with bids reaching PHP 15.036 billion. The average rate for the six-month T-bill stood at 5.885%, up by 2 bps from the prior week, with accepted rates at 5.823 to 5.919%.

Lastly, the Treasury also raised PHP 5 billion as planned via the 364-day debt papers as demand for the tenor totaled PHP 14.57 billion. The average rate of the one-year T-bill climbed by 1.8 bps to 5.983%. Accepted yields were from 5.95% to 6.025%.

Meanwhile, the reissued 20-year bonds to be auctioned off on Tuesday were last offered on  Nov. 22, 2023, where the government made a full P20-billion award of the papers at an average rate of 6.593%, 15.7 bps below the 6.75% coupon for the series.

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

The government borrows from local and foreign sources to help fund its PHP 1.48-trillion budget deficit, which is capped at 5.6% of gross domestic product for this year. — BMDC with Reuters