Rates of T-bills, bonds may drop  as market sees slower July CPI

Rates of Treasury bills and bonds on offer this week could decline amid expectations that headline inflation eased in July.

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 364-day papers.

On Tuesday, it will offer PHP 30 billion in reissued 10-year Treasury bonds (T-bonds) with a remaining life of four years and seven months.

T-bill and T-bond rates may track secondary market yields amid an expected easing in June inflation, 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 10.83 basis points (bps), 2.18 bps, and 2.63 bps week on week to end at 5.6997%, 5.9347%, and 6.1188%, respectively, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates data published on the Philippine Dealing System’s website.

Meanwhile, the 10-year T-bond went up by 6 bps week on week to 6.3562% on Friday, while the five-year bond, the tenor closest to the remaining life of the papers on offer this week, saw its rate climb by 4.77 bps to 6.2805%.

The Philippine Statistics Authority will release July consumer price index (CPI) data on Friday, August 4.

A BusinessWorld poll of 17 analysts yielded a median estimate of 4.9% for July inflation.

If realized, this would be below the 5.4% in June but would match the 4.9% seen in April last year. It would also be the slowest rise since the 4% seen in March 2022.

Still, this would mark the 16^th straight month that the CPI exceeded the central bank’s annual 2-4% target.

A trader added in an e-mail that T-bond yields could range from 6.2% to 6.3% amid stronger US economic growth and after the Bank of Japan’s latest policy move.

The US economy grew faster than expected in the second quarter as a resilient labor market supported consumer spending, while businesses boosted investment in equipment and built more factories, potentially keeping a much-feared recession at bay, Reuters reported.

US gross domestic product (GDP) increased at a 2.4% annualized rate last quarter, the government said in its advance estimate of second-quarter GDP. The economy grew at a 2% pace in the January-March quarter. Economists polled by Reuters had forecast GDP would rise at a 1.8% rate in the April-June period.

Meanwhile, the Bank of Japan (BoJ) heralded the start of a slow shift away from decades of massive monetary stimulus on Friday, allowing the country’s interest rates to rise more freely in line with increasing inflation and economic growth.

In what some analysts said could be a seismic shift for global financial markets, the BoJ made its bond yield control policy more flexible and loosened its defense of a long-term interest rate cap.

The BoJ said it would offer to buy 10-year Japanese government bonds at 1% in fixed-rate operations, instead of the previous rate of 0.5%, signaling that it would now tolerate a rise in the 10-year yield to as much as 1%.

Last week. The BTr raised PHP 15 billion as planned via the T-bills it auctioned off on Tuesday, with total bids reaching PHP 66.695 billion or more than four times the amount on the auction block.

Broken down, the Treasury made a full PHP 5-billion award of the 91-day T-bills as tenders for the tenor reached PHP 29.775 billion. The average rate of the three-month papers went down by 27.3 bps to 5.611%, with accepted rates ranging from 5.608% to 5.618%.

The government also raised PHP 5 billion as planned from the 182-day securities as bids stood at PHP 22.815 billion. The average rate for the six-month T-bill was at 5.823%, falling by 27.2 bps from the previous week’s level, with accepted rates from 5.818% to 5.838%.

Lastly, the BTr borrowed PHP 5 billion as programmed via the 364-day debt papers as demand reached PHP 14.105 billion. The average rate of the one-year T-bill inched down by 4.2 bps to 6.184%. Accepted yields were from 6.1% to 6.275%.

Meanwhile, the reissued 10-year bonds to be offered on Tuesday were last auctioned off on June 6, where the government raised just PHP 16.742 billion out of the PHP 25-billion program. The bonds were awarded at an average rate of 5.805%.

The BTr wants to raise PHP 225 billion from the domestic market this month, or PHP 75 billion via T-bills and PHP 150 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. — AMCS with Reuters