Rates to move sideways before Fed, BSP reviews

RATES of Treasury bills (T-bills) and Treasury bonds (T-bonds) may move sideways to track secondary market movements ahead of the monetary policy meetings of both the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve this week.

The Bureau of the Treasury (BTr) will auction off PHP 15 billion in T-bills on Monday, made up of PHP 5 billion each in 91-, 182-, and 364-day papers.

On Tuesday, it will offer PHP 25 billion in reissued 20-year T-bonds, which have a remaining life of 19 years and eight months.

T-bill rates could go up slightly this week to track yields at the secondary market “in view of the recent market expectations of a possible +0.25 Fed rate hike on March 22, 2023 that could be matched locally, at the very least on March 23, 2023 to maintain comfortable interest rate differentials to help stabilize the peso, import costs, and overall 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 up by 15.09 basis points (bps), 11.61 bps, and 8.45 bps week on week to end at 4.8621%, 5.4456%, and 5.8008%, respectively, based on the PHP Bloomberg Valuation Service (BVAL) Reference Rates data published on the Philippine Dealing System’s website.

“The upcoming 20-year Treasury bond auction could be close to the comparable 20-year PHP BVAL yield at 6.55% as of Jan. 17, 2022,” Mr. Ricafort added.

The 20-year bonds dropped by 3.25 bps week on week to end at 6.5565% on Friday at the secondary market.

Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a report that the T-bonds on offer on Tuesday could fetch yields ranging from 6.5% to 6.6% amid “lackluster market participation.”

“On the trading side, it’s either caution or preference for the local curve’s belly assuming upside yield pressures materialize while we await the BSP’s forward guidance on the final chapter of its rate actions,” Mr. Asuncion said.

“Whether the FOMC (Federal Open Market Committee) sanctions a pause or a rate hike this week, we believe the BSP will raise its policy rate by 25 bps on Thursday to 6.25%… Our disinflation started in February although marginal, which sustained the condition of an inflation overshoot (versus the BSP’s target range). This persistent overshoot will underpin the BSP’s tightening bias and action regardless of the FOMC decision,” he added.

The Fed will meet to review its policy settings on March 21-22.

The US central bank hiked its target interest rate by 25 bps at its Jan. 31 to Feb. 1 meeting to a range between 4.5% and 4.75%.

Since March 2022, the Fed has raised rates by a total of 450 bps.

On the other hand, the BSP will hold its policy meeting on March 23.

A BusinessWorld poll last week showed 12 out of 14 analysts see the Monetary Board hiking rates by 25 bps on Thursday amid expectations of easing inflation.

The BSP last month hiked benchmark interest rates by 50 bps for a second straight meeting, bringing its policy rate to 6%.

It has now raised borrowing costs by 400 bps since May 2022.

Last week, the BTr raised just PHP 12.837 billion from its offering of T-bills, lower than the PHP 15-billion program, as rates climbed across the board.

Broken down, the Treasury made a partial PHP 3.781-billion award of the 91-day T-bills versus the PHP 5-billion plan, despite tenders for the tenor reaching PHP 6.091 billion. The average rate of the three-month paper rose by 7.8 bps to 4.664%. Accepted rates ranged from 4.57% to 4.75%.

The government likewise borrowed just PHP 4.056 billion via the 182-day securities, lower than the PHP 5-billion program, even as demand reached PHP 7.816 billion. The six-month T-bill was quoted at an average rate of 5.437%, up by 5.9 bps from the previous auction, with accepted rates ranging from 5.408% to 5.475%.

Meanwhile, the BTr made a full PHP 5-billion award of the 364-day debt papers as bids for the tenor reached PHP 7.722 billion. The average rate of the one-year paper inched up by 1 bp to 5.717%. Accepted yields were from 5.69% to 5.775%.

On the other hand, the reissued 20-year T-bonds to be auctioned off on Tuesday were last offered on Jan. 17, where the government raised PHP 49 billion, higher than the programmed PHP 35 billion. The bonds fetched an average rate of 6.525%, with accepted rates at 6.49% to 6.6%.

The Treasury wants to raise PHP 200 billion from the domestic market this month, or PHP 75 billion via T-bills and PHP 125 billion via T-bonds.

The government borrows from local and external sources to help fund its budget deficit, which is capped at 6.1% of gross domestic product this year. — A.M.C. Sy