Rates of T-bills, bonds likely to follow secondary market prices

RATES of Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week could track secondary market levels as investors anticipate the central bank’s next policy move.

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

On Tuesday, it will offer P25 billion in reissued seven-year Treasury bonds T-bonds that have a remaining life of six years and two months.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that T-bill and T-bond rates may track secondary market movements.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills went up by 2.2 bps, 14.78 bps, and 6.21 bps week on week to end at 4.4988%, 5.1415%, and 5.4464%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website.

Meanwhile, the seven-year bond fetched a yield of 6.1534%, also down 3.17 bps week on week.

Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a report that the T-bonds on offer this week may fetch yields of 6% to 6.10% as their traders “expect the favorable risk appetite to persist.”

“While there’s near-term relief from risk of a steeper bond curve, pricing in a higher BSP (Bangko Sentral ng Pilipinas) terminal policy rate beyond 6% for the next 2-3 quarters is still a prospective market issue,” Mr. Asuncion noted.

He added that the bank forecasts the BSP to hike its key rate to up to 6.5% this year until inflation starts to ease.

The BSP hiked benchmark interest rates by 50 bps for a second straight meeting on Feb. 16 to tame inflation.

This brought its policy rate to 6%, the highest in nearly 16 years or since May 2007 when it stood at 7.5%.

It has now raised borrowing costs by 400 bps since May 2022.

Meanwhile, a trader said in a Viber message that they expect lower demand for the T-bonds due to the smaller amount on offer compared to the P35 billion seen in previous weekly auctions. This could cause the bond’s average rate to settle at 6.125% to 6.25%.

Last week, the BTr raised PHP 13.05 billion from its offering of T-bills, lower than the PHP 15-billion program, as rates climbed across all tenors.

Broken down, the Treasury raised only PHP 3.35 billion via the 91-day T-bills from the PHP 5-billion program, with tenders reaching PHP 7.33 billion. The average rate of the three-month paper rose by 18.3 bps to 4.413%, with accepted rates ranging from 4.325% to 4.5%.

The government also made a partial P4.5-billion award of the 182-day securities versus the PHP 5-billion plan, even as demand for the tenor reached P10 billion. The six-month T-bill was quoted at an average rate of 5.06%, rising by 11.1 bps, with accepted rates ranging from 5.025% to 5.1%.

On the other hand, the BTr raised PHP 5 billion as planned from the 364-day debt papers as demand for the tenor reached PHP 12.988 billion. The average rate of the one-year T-bill climbed by 15.7 bps to 5.455%. Accepted yields were from 5.375% to 5.55%.

Meanwhile, the reissued six-year T-bonds to be auctioned off on Tuesday were last offered on Sept. 20, where the government raised the programmed PHP 35 billion. The issue fetched an average rate of 6.588%, with accepted rates at 6.375% to 6.75%.

The Treasury wants to raise PHP 200 billion from the domestic market in March, or PHP 75 billion via T-bills and PHP 125 billion via T-bonds.

The government borrows from domestic and external sources to finance its budget deficit, which is capped at PHP 1.47 trillion this year or 6.1% of gross domestic product. — Aaron Michael C. Sy