T-bill, bond rates may be mixed

Rates of Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week may be mixed as US Federal Reserve officials continued to signal that rates will likely stay higher for longer.

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 reissued three-year T-bonds with a remaining life of two years and seven months.

T-bill and T-bond rates could track the mixed movements in secondary market yields following hawkish signals from Fed policy makers, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

US Federal Reserve officials are not ready to say inflation is heading to the central bank’s 2% target after data last week showed a welcome easing in consumer price pressures in April, with several on Monday calling for continued policy caution, Reuters reported.

“It is too early to tell whether the recent slowdown in the disinflationary process will be long lasting,” Fed Vice Chair Philip Jefferson told the Mortgage Bankers Association conference in New York, even as he called the April data “encouraging.”

Speaking separately at a conference held by the Atlanta Fed, Fed Vice Chair of Supervision Michael Barr, said “disappointing” first-quarter inflation readings were “did not provide me with the increased confidence that I was hoping to find to support easing monetary policy.”

Like Mr. Jefferson, Mr. Barr reinforced the Fed’s overarching message that rate cuts, highly anticipated by markets, are on hold until it is clear inflation will return to the Fed’s 2% target.

“We will need to allow our restrictive policy some further time to continue its work,” Mr. Barr said.

Consumer prices cooled in April, and retail spending did not increase at all, two welcome signs that the economy may be losing some steam in the face of a policy rate that the Fed has held in the 5.25%-5.5% range since last July.

But Fed policy makers, stung by a string of higher-than-expected inflation readings for the three months prior, remain cautious and want to make sure pricing pressures are fully on track back to the Fed’s 2% target rate before starting to cut its benchmark interest rate.

The Fed’s next policy meeting is June 11-12. Traders in contracts tied to the central bank’s policy rate currently do not expect an interest rate cut until September.

At the secondary market on Friday, the 91-day T-bill went down by 1.1 basis points (bps) week on week to yield 5.78811%, based on PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website. Meanwhile, the 182-day and 364-day T-bills went up by 4.23 bps and 0.81 bp to end at 5.9429% and 6.0323%, respectively.

For its part, the three-year bond saw its yield rise by 1.49 bps week on week to close at 6.3867%.

Secondary market traders were mostly cautious on Friday, resulting in “flattish” rates, a trader said in an e-mail.

This week’s three-year bond auction could see strong demand amid the limited supply of the tenor in the market, the trader added, noting the papers could fetch rates ranging from 6.325% to 6.45%.

The papers to be offered on Tuesday were last auctioned off on Jan. 30, where the government made a full P30-billion award for an average rate of 6.007%, 0.7 bp higher than the 6% coupon rate.

Meanwhile, last week, the BTr raised PHP 15 billion as planned from the T-bills it offered as total bids reached PHP 59.345 billion or nearly four times the amount on the auction block.

Broken down, the Treasury borrowed PHP 5 billion as programmed from the 91-day T-bills as tenders for the tenor reached PHP 19.105 billion. The average rate for the three-month paper went down by 1.5 bps week on week to 5.712%. Accepted rates ranged from 5.67% to 5.725%.

The government likewise made a full PHP 5-billion award of the 182-day securities, with bids reaching PHP 19.36 billion. The average rate for the six-month T-bill stood at 5.864%, down by 2.9 bps, with accepted rates at 5.843% to 5.875%.

Lastly, the Treasury raised the planned PHP 5 billion via the 364-day debt papers as demand for the tenor totaled PHP 20.88 billion. The average rate of the one-year debt dropped by 3 bps to 6.007%. Accepted yields were from 6% to 6.013%.

The BTr wants to raise PHP 210 billion from the domestic market this month, or PHP 60 billion from 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 PHP 1.48 trillion or 5.6% of gross domestic product for this year. — A.M.C. Sy with Reuters