Rates of T-bills, bonds may climb after US data

Rates of the Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week could track the rise in secondary market yields following the latest US inflation data and US Federal Reserve rate cut bets.

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 fresh seven-year T-bonds.

T-bill and T-bond rates may track the increases seen in secondary market yields, which came amid volatility in the peso-dollar exchange rate, high global crude oil prices and geopolitical tensions in the Middle East, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

At the secondary market on Friday, rates of the 91-, 182-, and 364-day T-bills went up by 11.05 basis points (bps), 8.72 bps, and 14.6 bps week on week to end at 5.337%, 5.5956%, and 5.9734% respectively, based on PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website.

The yield on the seven-year bond also rose by 8.47 bps week on week to end at 6.1662% on Friday.

On Friday, the peso closed at PHP 55.911 against the dollar, strengthening by 3.9 centavos from its PHP 55.95 close on Thursday, data from the Bankers Association of the Philippines’ website showed.

Week on week, however, the local unit weakened by 21.1 centavos from its PHP 55.70 close on Jan. 5.

Meanwhile, Brent crude futures rose 88 cents, or 1.1%, to settle at USD 78.29 a barrel. The session high was more than USD 80, the highest this year so far. US West Texas Intermediate crude futures climbed 66 cents, or 0.9%, to settle at USD 72.68, paring gains after touching a 2024 high of USD 75.25, Reuters reported.

On the other hand, a trader expects the seven-year bonds on offer this week to fetch a coupon rate of 6.25%.

“Ultimately, the seven-year Dutch auction [this] week will be highly anticipated as it could actually fetch a coupon rate of 6.25%, forcing the yield curve to adjust,” a trader said in an e-mail.

T-bill and T-bond rates could climb amid recent US inflation data, which could support the possibility of a rate cut by the Fed as early as March, Mr. Ricafort added.

US consumer prices increased more than expected in December, with Americans paying more for shelter and healthcare, suggesting it was probably too early for the Federal Reserve to start cutting interest rates, Reuters reported.

The consumer price index (CPI) rose 0.3% last month after nudging up 0.1% in November, the Labor department’s Bureau of Labor Statistics said.

In the 12 months through December, the CPI rose 3.4% after increasing 3.1% in November.

Inflation averaged 4.1% in 2023, down from 8% in 2022.

Financial markets still see more than a 60% chance of a rate cut at the Fed’s March 19-20 policy meeting, according to CME Group’s FedWatch Tool. The Fed has hiked its policy rate by 525 bps to the current 5.25%-5.5% range since March 2022.

Meanwhile, US producer prices unexpectedly fell in December amid declining costs for goods such as diesel fuel and food, suggesting inflation would continue to subside and allow the Federal Reserve to start cutting interest rates this year.

The producer price index (PPI) for final demand dipped 0.1% last month, the Labor department’s Bureau of Labor Statistics said. Data for November was revised to show the PPI falling 0.1% instead of being unchanged as previously reported. The PPI has now declined for three consecutive months.

In the 12 months through December, the PPI increased 1% after advancing 0.8% in November.

Last week, the BTr raised PHP 19 billion via the T-bills, more than the original PHP 15-billion program, as total bids reached PHP 46.875 billion.

Broken down, the Treasury raised PHP 7 billion from the 91-day T-bills, above the PHP 5-billion program, as tenders for the tenor reached PHP 18.36 billion. The three-month paper was quoted at an average rate of 5.102%, down by 3.8 bps from the previous week. Accepted rates ranged from 4.98% to 5.25%.

The government also raised PHP 7 billion through the 182-day securities, more than the planned PHP 5 billion, as bids for the paper reached PHP 16.91 billion. The average rate for the six-month T-bill stood at 5.582%, inching up by 0.4 bp, with accepted yields ranging from 5.29% to 5.7%.

Lastly, the BTr borrowed PHP 5 billion as programmed via the 364-day debt papers as bids for the tenor reached PHP 11.605 billion. The average rate of the one-year T-bill went up by 14.4 bps to 5.973%. Accepted rates were from 5.83% to 6.025%.

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

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 or PHP 1.39 trillion. — Luisa Maria Jacinta C. Jocson with Reuters