Rates of T-bills, bonds may be mixed before Fed

Rates of Treasury bills (T-bills) and Treasury bonds (T-bonds) could be mixed this week after faster-than-expected US inflation reduced expectations of policy easing by the US Federal Reserve this year.

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 20-year T-bonds with a remaining life of 19 years and 11 months.

T-bill and T-bond rates may track the mixed movements in secondary market yields last week amid reduced expectations of policy easing by the Fed this year following the release of the latest US consumer and producer inflation data, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“Fast money was seen taking profit today following hotter than expected PPI (producer price index) data from the US, which threatens the base case three cuts from the Fed,” a trader said in an e-mail on Friday.

The trader said the 20-year T-bond could see strong demand and fetch an average rate ranging from 6.25% to 6.3%.

At the secondary market on Friday, the 91-day T-bill rose by 0.77 basis point (bp) week on week to yield 5.7729%, based on PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website. Meanwhile, the 182- and 364-day papers went down by 1.68 bps and 8.84 bps to end at 5.7729% and 6.0195%, respectively.

On the other hand, the 20-year bond rose by 4.46 bps week on week to 6.3001%.

The US consumer price index (CPI) increased solidly in February, beating forecasts and suggesting some stickiness in inflation, Reuters reported.

Although the CPI rose 0.4% in February in line with forecasts, a 3.2% year-on-year gain came in just ahead of an expected 3.1% increase. Core figures also topped estimates.

A Labor department report likewise showed the producer price index (PPI) rose by 0.6% month on month in February, compared with a 0.3% increase expected by economists polled by Reuters, amid a surge in the cost of goods like gasoline and food.

It rose by 1.6% in the 12 months to February, versus an estimated growth of 1.1%.

Traders now see a 62% chance of the Fed cutting rates in June, according to the CME FedWatch tool, down from 67% before the PPI data.

The Fed will meet to discuss policy on March 19-20.

The US central bank held its target rate steady at the 5.25-5.5% range for a fourth straight time during its meeting in January. It raised borrowing costs by 525 bps from March 2022 to July 2023.

Last week, the BTr raised PHP 15 billion as planned from the T-bills as total bids reached PHP 50.708 billion, more than thrice the amount on the auction block.

The Treasury raised PHP 5 billion as programmed from the 91-day T-bills as tenders reached PHP 13.555 billion. The average rate of the three-month T-bill went down by 0.6 bp to 5.772%. Accepted rates ranged from 5.73% to 5.825%.

The government likewise made a full PHP 5-billion award of the 182-day debt as bids hit PHP 17.631 billion. The average rate for the six-month T-bills rose by 2.9 bps to 5.966%. Accepted rates were 5.93% to 5.993%.

Lastly, the BTr borrowed PHP 5 billion as planned from the 364-day papers as demand for the tenor totaled PHP 19.522 billion. The average rate of the one-year T-bill went down by 1.3 bps to 6.087%. Accepted yields were 6.089% to 6.125%.

Meanwhile, the reissued T-bonds to be auctioned off on Tuesday were first offered on Feb. 27, where the government raised P30 billion as planned. The bonds fetched a coupon rate of 6.25% and an average rate of 6.209%.

The BTr is looking to raise PHP 180 billion from the domestic market this month, or P60 billion from T-bills and PHP 120 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. — A.M.C. Sy with Reuters