Rates of Treasury bills, bonds likely to be mixed

Rates of Treasury bills (T-bills) and Treasury bonds (T-bonds) to be auctioned off this week may end mixed as the market looks ahead to the Bangko Sentral ng Pilipinas’ (BSP) policy meeting next month, where it is expected to slash benchmark borrowing costs for the first time in over three years.

The Bureau of the Treasury (BTr) will auction off PHP 20 billion in T-bills on Monday, or PHP 6.5 billion each in 91- and 182-day papers, and PHP 7 billion in 364-day debt.

On Tuesday, the government will offer PHP 30 billion in reissued 20-year T-bonds with a remaining life of three years and one month.

Yields on the T-bills and T-bonds on offer this week could track the mixed movements in secondary market yields on Friday after Finance Secretary Ralph G. Recto said the central bank remains on track for a rate cut, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Secondary market yields ended mixed on Friday amid some “two-way interest” after strong US data overnight, a trader said in an e-mail.

The 20-year T-bonds on offer this week could fetch rates ranging from 6% to 6.15% following the release of US June personal consumption expenditures (PCE) index data on Friday, the trader added.

At the secondary market on Friday, the rate of the 91-day T-bill went down by 0.621 basis point (bp) week on week to end at 5.7294%, based on PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website. Meanwhile, the 182-day and 364-day T-bills went up by 1.67 bps and 5.3 bps to end at 6.0390% and 6.1583%, respectively.

On the other hand, the 20-year bond dropped by 2.46 bps week on week to fetch 6.0893% on Friday, while the three-year debt, the tenor closest to the remaining life of the papers on offer this week, rose by 1.91 bps to yield 6.4019%.

Mr. Recto, who is also a member of the central bank’s policy-setting Monetary Board, said on Tuesday the country is on track for a cut in benchmark interest rates this year due to easing inflation, though the timing would be up to the central bank, Reuters reported.

The central bank, which has kept interest rates steady at 6.5% in its last six meetings, has previously flagged a possible cut of 25 bps at its Aug. 15 meeting as it sees inflation easing in the second half.

BSP Governor Eli M. Remolona, Jr. earlier said the Monetary Board could reduce borrowing costs by 25 bps in the third quarter and by another 25 bps in the fourth quarter. Next month’s review is the only meeting scheduled this quarter.

The central bank last slashed benchmark borrowing costs by 25 bps in November 2020 to bring the policy rate to a record low of 2% to boost economic activity during the height of the coronavirus pandemic.

Meanwhile, US prices increased moderately in June as the declining cost of goods tempered a rise in the cost of services, underscoring an improving inflation environment that could position the Federal Reserve to begin cutting interest rates in September, Reuters reported.

The PCE price index nudged up 0.1% last month after being unchanged in May, the Commerce department’s Bureau of Economic Analysis reported. The increase in PCE inflation was in line with economists’ expectations.

In the 12 months through June, the PCE price index climbed 2.5%. That was the smallest year-on-year gain in four months and followed a 2.6% advance in May.

The Fed tracks the PCE price measures for monetary policy.

The Fed has maintained its benchmark overnight interest rate in the current 5.25%-5.5% range since July 2023. It has hiked its policy rate by 525 bps since 2022.

Last week, the BTr raised PHP 20 billion as planned from the T-bills it auctioned off as total bids reached PHP 47.372 billion, or more than twice the amount on offer.

Broken down, the Treasury borrowed PHP 6.5 billion as programmed from the 91-day T-bills as tenders for the tenor reached PHP 14.86 billion. The average rate of the three-month papers rose by 2.6 bps week on week to end at 5.743%. Accepted rates ranged from 5.724% to 5.755%.

The government likewise made a full PHP 6.5-billion award of the 182-day securities as bids for the tenor reached PHP 15.01 billion. The average rate for the six-month T-bill stood at 5.991%, up by 1.3 bps from the prior week, with accepted rates at 5.98% to 5.998%.

Lastly, the Treasury raised the planned PHP 7 billion via the 364-day debt papers as demand totaled PHP 17.502 billion. The average rate of the one-year debt inched up by 0.9 bp to 6.081%. Accepted yields were from 6.05% to 6.095%.

Meanwhile, the reissued 20-year bonds to be offered on Tuesday were last auctioned off on Nov. 29, 2022, where the government raised just PHP 22.969 billion out of the PHP 35-billion program at an average rate of 6.568%, 205.7 bps below the 8.625% coupon rate.

The BTr wants to raise PHP 215 billion from the domestic market this month, or PHP 100 billion from T-bills and PHP 115 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at PHP 1.48 trillion or 5.6% of gross domestic product for this year. — A.M.C. Sy with Reuters