Rates of Treasury bills, bonds may rise on hawkish Fed bets

Rates of the Treasury bills and bonds on offer this week could rise slightly amid hawkish bets on the US Federal Reserve’s next move.

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 fresh 15-year Treasury bonds (T-bonds).

T-bill and T-bond rates may track the rise in secondary market yields last week due to expectations of a rate hike from the Fed this month, 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 rose by 2.5 basis points (bps), 1.24 bps, and 6.59 bps week on week to end at 6.1088%, 6.1939%, and 6.2834%, respectively, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates data published on the Philippine Dealing System’s website.

“The upcoming 15-year Treasury bond/FXTN auction yield could be similar to the comparable 15-year PHP BVAL yield at 6.73% as of July 7, 2023, sharply up by 0.53 week on week,” Mr. Ricafort added.

The US central bank paused its tightening cycle last month after hiking borrowing costs for 10 straight meetings by a total of 500 bps, bringing the fed funds rate to a range between 5% and 5.25%.

Fed Chair Jerome H. Powell earlier said the Fed could hike by 25 bps two more times within the year due to stronger-than-expected economic data.

The Fed will likely raise its benchmark interest rate later this month to a 5.25%-5.5% range, traders bet on Friday, even as they priced in a slightly lower chance of any further increase after a government report showed hiring slowed more than expected in June, Reuters reported.

Traders now see about a 20% chance of a rate hike in September and a 40% chance of one by November, after what is nearly universally expected to be a quarter-point increase at the US central bank’s late-July meeting.

Before the Labor department report, they had seen a nearly even chance that rates would get to a 5.5%-5.75% range by November.

Nonfarm payrolls increased by 209,000 jobs last month, the smallest gain since December 2020, the survey of establishments showed. Economists polled by Reuters had forecast payrolls rising 225,000. It was the first time in 15 months that payrolls missed expectations.

Job growth averaged 278,000 per month in the first half of the year. The economy needs to create 70,000-100,000 jobs per month to keep up with growth in the working-age population.

“[The] GS (government securities) market will likely have no reprieve over the weekend regardless… Demand should be fairly decent though as we think investment books will be supportive, triggering another notch higher for the yield curve,” a trader said in an e-mail.

The trader sees the fresh 15-year notes fetching yields from 7% to 7.25% on Tuesday.

Last week, the BTr raised just PHP 9.219 billion via the T-bills it auctioned off on Monday versus the PHP 15-billion program, even as total bids reached PHP 17.419 billion.

Broken down, the Treasury raised only PHP 2.954 billion via the 91-day T-bills out of the planned PHP 5 billion, even as tenders for the tenor reached PHP 6.584 billion. The average rate of the three-month papers went up by 6.4 bps to 6.15%, with accepted yields ranging from 6.044% to 6.198%.

The government also made a partial PHP 2.67-billion award of the 182-day securities versus the PHP 5-billion program as bids reached just PHP 4.63 billion. The six-month T-bill was quoted at an average rate of 6.266%, up by 12.2 bps from the previous week, with accepted rates from 6.11% to 6.293%.

Lastly, the BTr raised just PHP 3.595 billion via the 364-day debt papers out of the PHP 5 billion on the auction block, even as demand for the tenor reached PHP 6.205 billion. The average rate of the one-year T-bill rose by 6.7 bps to 6.286%. Accepted yields were from 6.18% to 6.375%.

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. — Aaron Michael C. Sy with Reuters