T-bill, bond rates likely to rise as central banks stay hawkish

Rates of Treasury bills (T-bills) and bonds on offer this week could continue to rise on expectations that there would be no policy easing from the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve for the rest of the year.

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 10-year Treasury bonds (T-bonds).

T-bill and T-bond rates may track the increase seen in secondary market yields as central banks here and in the US are not expected to cut their benchmark rates for the rest of the year, 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 15.6 basis points (bps), 13.17 bps, and 7.82 bps week on week to end at 5.8575%, 6.0551%, and 6.2757%, respectively, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates data published on the Philippine Dealing System’s website.

Meanwhile, the 10-year bond inched up by 0.15 bp week on week to end at 6.5648%.

“Players still remain cautious of [this] week’s MB (Monetary Board) meeting, where the BSP is expected to keep the rate hike pause,” a trader said in an e-mail.

The trader expects T-bond yields to range from 6.625% to 6.75%.

A BusinessWorld poll last week showed 13 of 15 analysts see the Monetary Board keeping its key interest rate steady at 6.25% during its fifth policy meeting for the year on Thursday.

On the other hand, two economists expect the BSP to hike borrowing costs by 25 bps to mirror the Fed’s move last month to bring the key rate to 6.5%.

BSP Governor Eli M. Remolona, Jr. warned against “sudden reversals” of monetary policy when asked about the possibility of a rate cut in an interview with Nomura Holdings, Inc. earlier this month.

Meanwhile, San Francisco Federal Reserve Bank President Mary Daly on Thursday said that while recent inflation data is moving in the right direction, more progress is needed before she would feel comfortable the Fed has done enough, Reuters reported.

The Fed raised borrowing costs by 25 bps in its July 25-26 meeting, bringing its benchmark overnight rate to a range between 5.25% and 5.5%.

Since it began its tightening cycle last year, the US central bank has hiked rates by a cumulative 525 bps.

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

Last week, the BTr raised just PHP 11.75 billion via the T-bills it auctioned off, short of the PHP 15-billion program, even as total bids reached PHP 38.062 billion or more than two times the amount on the auction block.

Broken down, the Treasury awarded PHP 3.6 billion in 91-day T-bills out of the PHP 5-billion program even as tenders for the tenor reached PHP 17.509 billion. The average rate of the three-month papers rose by 37.4 bps week on week to 5.598%, with accepted rates ranging from 5.573% to 5.615%.

The government raised just PHP 3.15 billion from the 182-day securities out of the planned PHP 5 billion despite bids reaching PHP 10.82 billion. The average rate for the six-month T-bill was at 5.99%, rising by 20.1 bps, with accepted rates at 5.95% to 5.998%.

Meanwhile, the BTr borrowed PHP 5 billion as programmed via the 364-day debt papers as demand reached PHP 9.733 billion. The average rate of the one-year T-bill went up by 8.4 bps to 6.294%. Accepted yields were from 6.15% to 6.325%.

The BTr wants to raise PHP 225 billion from the domestic market this month, or PHP 75 billion via T-bills and PHP 150 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