Treasury bill, bond rates may drop after key data

Rates of Treasury bills (T-bills) and bonds (T-bonds) to be auctioned off this week may go down after June Philippine headline inflation came out below market expectations.

The Bureau of the Treasury (BTr) will auction off PHP 20 billion in T-bills on Monday, or PHP 6.5 billion each in 91- and 182-day papers and PHP 7 billion in 364-day debt.

On Tuesday, the government will offer PHP 30 billion in reissued 20-year T-bonds with a remaining life of seven years and nine days.

Rates of T-bills and T-bonds to be offered this week could track the mixed movements in secondary market yields in the past few days in anticipation of the release of Philippine June inflation and US jobs data on Friday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Easing June inflation boosted chances of a rate cut by the Bangko Sentral ng Pilipinas (BSP) by next month, which could lead to lower yields on government debt, a trader said in an e-mail.

The soft US nonfarm payrolls report released on Friday, which also renewed expectations of the US Federal Reserve easing its policy stance within this year, may also cause T-bill and T-bond rates to go down this week, the trader added.

“We expect another well-bid seven-year auction with a current indicative range of 6.3-6.4%,” the trader said.

At the secondary market on Friday, the rates of the 91-day and 182-day T-bills went down by 2.81 basis points (bps) and 3.66 bps week on week to end at 5.7152% and 5.9669%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website. Meanwhile, the 364-day T-bill’s yield went up by 1.07 bps week on week to 6.0848%.

On the other hand, the rate of 20-year bond decreased by 4.77 bps week on week to 6.7718% on Friday, while the seven-year debt, the tenor closest to the remaining life of the T-bonds on offer this week, fell by 10.28 bps to yield 6.4364%.

Philippine headline inflation rose to 3.7% year on year in June, easing from 3.9% in May and 5.4% in the same month a year ago.

This was below the 3.9% median estimate in a BusinessWorld poll of 14 analysts.

The June consumer price index (CPI) was within the BSP’s 3.4-4.2% forecast for the month, and also marked the seventh straight month that inflation settled within the central bank’s 2-4% annual target.

For the first six months, the CPI averaged 3.5%, slightly faster than the central bank’s 3.3% full-year forecast.

BSP Governor Eli M. Remolona, Jr. has said the Monetary Board may kick off its easing cycle at its Aug. 15 review — the only policy meeting scheduled in the third quarter — as they expect inflation to continue easing this semester.

Meanwhile, US employment increased solidly in June, but government and healthcare services hiring made up about three-quarters of the payrolls gain and the unemployment rate hit a 2-1/2-year high of 4.1%, pointing to a slackening labor market that keeps the Fed on course to start cutting interest rates soon, Reuters reported.

Nonfarm payrolls increased by 206,000 jobs last month, lifted by government hiring, the Labor department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast payrolls would increase by 190,000 last month, with the unemployment rate unchanged at 4%.

When added to the moderation in prices in May, the report could boost Fed policy makers’ confidence in the inflation outlook after the disinflationary trend was disrupted in the first quarter. Financial markets expect the US central bank, which aggressively tightened monetary policy in 2022 and 2023, to start its easing cycle in September.

Last week, the government raised PHP 20 billion as planned from T-bills as total bids for its offer reached PHP 43.025 billion, or more than twice the amount placed on the auction block.

Broken down, the BTr borrowed PHP 6.5 billion as programmed from the 91-day T-bills as tenders for the tenor reached PHP 19.06 billion. The average rate for the three-month paper rose by 2 bps to 5.686% from the previous week. Accepted rates ranged from 5.668% to 5.698%.

The government likewise made a full PHP 6.5-billion award of the 183-day securities, with bids reaching PHP 11.81 billion. The average rate for the six-month T-bill stood at 5.959%, up by 2.9 bps, with accepted rates at 5.918% to 5.999%. The six-month tenor was adjusted from the usual 182-day maturity due to a holiday.

Lastly, the Treasury raised the planned PHP 7 billion via the 364-day debt papers as demand for the tenor totaled PHP 12.155 billion. The average rate of the one-year debt increased by 1.9 bps to 6.05%. Accepted yields were from 6.03% to 6.085%.

Meanwhile, the reissued 20-year bonds to be auctioned off on Tuesday were last offered on June 4, where the government made a full P30-billion award at an average rate of 6.624%.

The BTr wants to raise PHP 215 billion from the domestic market this month, or PHP 100 billion from T-bills and PHP 115 billion via T-bonds.

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