Rates of T-bills, bonds may climb on hawkish Fed

Rates of treasury bills and bonds on offer this week could rise after hawkish remarks from US Federal Reserve Chair Jerome H. Powell.

The Bureau of the Treasury (BTr) will auction off PHP 15 billion in Treasury bills (T-bills) on Monday, or PHP 5 billion each in 91-, 182- and 365-day papers.

On Tuesday, it will offer PHP 25 billion in reissued 10-year Treasury bonds (T-bonds) with a remaining life of nine years and two months.

T-bill and T-bond rates may track the rise in yields seen at the secondary market last week after hawkish signals from Mr. Powell, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“Overnight, Powell “tripled down” on his hawkish tone which the broad market heeded,” a trader likewise said in an e-mail.

The trader sees the nine-year paper’s yield to be between 6.2% and 6.3%.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills went up by 19.45 basis points (bps), 6.61 bps, and 8.46 bps week on week to end at 6.0886%, 6.0958%, and 6.1301%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website.

Meanwhile, the yield on the 10-year papers rose by 11.23 bps week on week to end at 6.1876% on Friday.

Further Fed rate increases are “a pretty good guess” of where the central bank is heading if the economy continues in its current direction, Mr. Powell said in remarks on Wednesday to lawmakers on Capitol Hill, Reuters reported.

In response to a question late in a three-hour hearing before the House Financial Services Committee, Mr. Powell said he would not characterize the Fed’s decision last week to hold interest rates steady as a “pause,” and noted the fact that a majority of policy makers see two more quarter-point rate increases as likely by the end of the year.

On Thursday, Mr. Powell said the central bank would move interest rates at a “careful pace” from here as policy makers edge towards a stopping point for their historic round of monetary policy tightening,

The Fed paused its aggressive tightening cycle for the first time in its June 13-14 review after hiking for 10 straight meetings by a cumulative 500 bps since March 2022 to a range between 5% and 5.25%.

The release of the July domestic borrowing plan “could steepen this flat curve if BTr will be tapping longer bonds such as 20 years,” the trader added.    

Mr. Ricafort said signals of a possible rate cut by January or February 2024 if inflation eases further could also affect yields.

The BSP kept its policy rate at 6.25% for a second straight meeting on Thursday after raising borrowing costs by 425 bps from May 2022 to March 2023 to help bring down inflation.

Last week, the BTr raised just PHP 8.8 billion via the T-bills it auctioned off versus the PHP 15-billion program, even as total bids reached PHP 18.605 billion.

Broken down, the Treasury borrowed just PHP 3.258 billion via the 91-day T-bills, below the PHP 5-billion plan, despite tenders for the tenor reaching PHP 5.568 billion. The average rate of the three-month papers went up by 10.7 bps to 6.029%, with accepted rates ranging from 5.898% to 6.074%.

The government likewise made a partial PHP 2.901-billion award of the 182-day securities versus the PHP 5-billion program, even as bids for the tenor reached P6.536 billion. The six-month T-bill was quoted at an average rate of 6.081%, up by 10.3 bps from the previous week, with accepted rates from 5.925% to 6.123%.

Lastly, the BTr raised only PHP 2.641 billion from the 364-day debt papers out of the PHP 5 billion on the auction block, even as demand reached P6.501 billion. The average rate of the one-year T-bill rose by 10.4 bps to 6.166%. Accepted yields were from 6% to 6.2%.

Meanwhile, the reissued 10-year T-bonds to be auctioned off on Tuesday were last offered on May 30, where the government raised the programmed PHP 25 billion. The papers were awarded at an average rate of 5.958%. — A.M.C. Sy with Reuters