Rates of Treasury bills, bonds likely to go down

Rates of Treasury bills (T-bills) and bonds on offer this week could decline to track secondary market yields amid dovish expectations on the US Federal Reserve’s next move.

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 three-year Treasury bonds (T-bonds).

T-bill and T-bond rates may track the decline seen in secondary market rates following lower 10-year US Treasury yields due to expectations that the Fed may be done with its tightening cycle, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

At the secondary market on Thursday, the 91-, 182-, and 364-day T-bills went down by 4.41 basis points (bps), 1.15 bps, and 4.11 bps week on week to end at 5.7081%, 5.9878%, and 6.2632% respectively, based on the PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website.

Meanwhile, the three-year bond went down by 3.86 bps to end at 6.1969% on Thursday.

US 10-year Treasury yields reversed earlier declines following the employment report on Thursday, as investors pared positions ahead of the Labor Day weekend, Reuters reported.

Benchmark 10-year notes last fell 23/32 in price to yield 4.1788% from 4.091% late on Thursday.

Financial markets are pricing in a 93% likelihood of a Fed pause this month after the release of softer labor data last week, according to CME’s FedWatch tool.

The US central bank raised interest rates by 25 bps last month, bringing its benchmark overnight rate to a range between 5.25% and 5.5%. It has hiked rates by a cumulative 525 bps since it began its tightening cycle in March last year.

The Federal Open Market Committee will meet on Septe mber 19-20 to review policy.

Expectations of faster August inflation also contributed to the decline in secondary market yields, Mr. Ricafort added.

A BusinessWorld poll of 18 analysts yielded a median estimate of 4.9% for August inflation, near the lower end of the Bangko Sentral ng Pilipinas’ (BSP) 4.8% to 5.6% forecast for the month.

If realized, this would be faster than the 4.7% in July, but lower than the 6.3% print in August 2022. It would also mark the 17^th straight month that inflation exceeded the BSP’s 2-4% target.

August inflation data will be released on September 5, Tuesday.

Last week, the BTr raised PHP 15 billion as planned via the T-bills it auctioned off as total bids reached PHP 49.125 billion or more than thrice the amount on offer.

Broken down, the Treasury made a full PHP 5-billion award of the 91-day T-bills as tenders for the tenor reached PHP 18.625 billion. The average rate of the three-month paper went down by 9.8 bps to 5.573%, with accepted rates ranging from 5.56% to 5.62%.

The government also raised PHP 5 billion as planned from the 182-day securities as bids for the tenor reached PHP 13.46 billion. The average rate for the six-month T-bill was at 5.993%, inching up by 0.7 bp from the previous week, with accepted rates at 5.95% to 6.038%.

Lastly, the BTr borrowed the programmed PHP 5 billion via the 364-day debt papers as demand stood at PHP 17.04 billion. The average rate of the one-year T-bill went down by 3.7 bp to 6.297%. Accepted yields were from 6.25% to 6.325%.

The BTr wants to raise PHP 180 billion from the domestic market this month or PHP 60 billion via T-bills and PHP 120 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. — A.M.C. Sy with Reuters