T-bill, bond rates could rise with expected Fed tightening pause 

Treasury bill and bond rates on auction this week could rise as traders look to the US Federal Reserve’s next monetary policy move, which could be matched locally.

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

On Wednesday, it will offer PHP 25 billion in reissued 20-year T-bonds with a remaining life of 14 years and eight months.

Rates of the government securities might track the rise seen at the secondary market as investors expect the Fed to pause its monetary tightening cycle this week, which could be matched by the Bangko Sentral ng Pilipinas (BSP), Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

The 91-and 364-day T-bills went up by 9.74 basis points (bps), and 1.68 bps week on week at the secondary market to end at 5.8631% and 5.9482%, respectively, on Friday, based on the PHP Bloomberg Valuation (BVAL) Reference Rates published on the Philippine Dealing System’s website. The 182-day T-bills fell by 6.21 bps to 5.9009%.

“The upcoming 15-year Treasury bond auction yields could be similar to the comparable 15-year PHP BVAL yield at 5.96% as of June 9,” Mr. Ricafort said.

Meanwhile, the 20-year T-bonds rose by 6.92 bps week on week to end at 5.9437%.

“As a result, the markets are now anticipating a possible pause on Fed rates on June 14, and also a pause on local policy rates on June 22,” he added.

The US central bank raised borrowing costs by 25 bps last month, bringing the Fed fund rate to 5-5.25%. It has increased borrowing costs by 500 bps since March 2022.

The Federal Open Market Committee will review policy on June 13-14.

The Bangko Sentral ng Pilipinas (BSP) paused its aggressive monetary tightening last month and signaled it would put the key rate on hold at its next two to three meetings.

The BSP raised policy rates by 425 bps from May 2022 to March 2023. The Monetary Board will review policy on June 22.

Mr. Ricafort also attributed the higher rates to volatile global crude oil prices after Saudi Arabia pledged to cut its oil output by a million barrels per day starting July.

Oil prices declined on Monday ahead of the US Federal Reserve meeting as investors tried to gauge the central bank’s appetite for further rate hikes, while concerns about China’s fuel demand growth and rising Russian crude supply weighed on the market, Reuters reported.

Brent crude futures fell by 1.3% or 97 cents to USD 73.82 a barrel by 4:37 a.m. GMT. US West Texas Intermediate (WTI) crude was at USD 69.24 a barrel, also down by 1.3%.

The Treasury bureau raised PHP 15 billion from T-bills it auctioned off on Monday, with total bids hitting PHP 27.653 billion — almost twice the amount on offer.

The Treasury borrowed PHP 5 billion as planned via the 91-day T-bills, with tenders reaching PHP 6.589 billion. The average rate of the three-month debt went up by 4.4 bps to 5.827%, with accepted rates ranging from 5.67% to 5.9%.

The government fully awarded PHP 5 billion in 182-day securities as bids for the tenor reached PHP 11.07 billion. The six-month T-bill was quoted at an average rate of 5.891%, up by 1.2 bps from the previous week, with accepted rates from 5.74% to 5.95%.

The bureau raised the programmed PHP 5 billion from the 364-day debt as demand hit P9.994 billion. The average rate of the one-year T-bill rose by 3.2 bps to 5.98%. Accepted yields were 5.81% to 6%.

Reissued 20-year T-bonds to be auctioned off on Wednesday were last offered on July 31, 2018, when the government rejected all bids.

The Treasury seeks to raise PHP 185 billion from the domestic market this month, or PHP 60 billion via T-bills and PHP 125 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 economic output this year. — Aaron Michael C. Sy