Further drop expected for T-bill, bond rates

Rates of Treasury bills (T-bills) and bonds on offer this week could continue to decline as they track the secondary market ahead of the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) rate-setting meetings.

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 10-year Treasury bonds (T-bonds) with a remaining life of nine years and 11 months.

T-bill and bond yields may track the declines seen at the secondary market due to signals from the BSP that it might pause at its next meeting despite inflation potentially easing to the 2-4% target later than expected, 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 down by 3.28 basis points (bps), 2.26 bps, and 2.94 bps week on week to end at 5.6225%, 5.9641%, and 6.1636,  respectively, based on PHP BVAL Reference Rates data published on the Philippine Dealing System’s website.

The 10-year bond likewise dropped by 4.96 bps week on week to end at 6.444% on Friday.

“Data calendar is light to end the week and focus is now directed towards the FOMC (Federal Open Market Committee) and BSP rate meetings next week. Both central banks are expected to stay neutral which could actually spur buying interest in the local bond market,” a trader said in an e-mail.

The Fed raised interest rates by 25 bps last month, bringing its benchmark overnight rate to a range between 5.25% and 5.5%. It has hiked rates by a cumulative 525 bps since it began its tightening cycle in March last year.

The FOMC will next meet on Sept. 19-20 to review policy.

Meanwhile, the BSP extended its policy pause for a third straight time at its Aug. 17 meeting, keeping the benchmark interest rate at a near 16-year high of 6.25%.

The central bank has raised borrowing costs by 425 bps from May 2022 to March 2023 to tame inflation.

The Monetary Board will next meet on Sept. 21 to review policy.

BSP Governor Eli M. Remolona, Jr. told reporters on Thursday that the acceleration in August inflation was caused by supply shocks in food and fuel, which dissipate “fairly quickly.”

“If that’s all there is, if there are no further supply shocks beyond that uptick in August, then it won’t be necessary to hike the policy rate…It won’t justify an easing, (but) it won’t be necessary to raise the policy rate,” he said.

Last week, the BTr raised PHP 15 billion as planned via the T-bills it auctioned off on Monday as total bids reached PHP 51.814 billion, or more than thrice the amount on offer.

Broken down, the Treasury made a full PHP 5-billion award of the 91-day T-bills as tenders for the tenor reached PHP 14.715 billion. The average rate for the three-month paper went up by 2.3 bps to 5.575%, with accepted rates ranging from 5.543% to 5.59%.

The government also raised PHP 5 billion as planned from the 182-day securities as bids for the tenor reached PHP 15.983 billion. The average rate for the six-month T-bill was down by 0.6 bp to 5.96%, with accepted rates at 5.938% to 5.974%.

Lastly, the BTr borrowed the programmed PHP 5 billion via the 364-day debt papers as demand for the tenor stood at PHP 21.116 billion. The average rate of the one-year T-bill inched down by 0.8 bp to 6.19%. Accepted yields were from 6.15% to 6.2%. 

Meanwhile, the reissued 10-year bonds to be offered on Tuesday were last auctioned off on Aug. 15, where the government raised PHP 30 billion as planned for an average rate of 6.558%.

The Treasury wants to raise PHP 180 billion from the domestic market this month, or PHP 60 billion via T-bills and PHP 120 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