T-bill, bond rates may drop on BSP easing hints

Rats of Treasury bills (T-bills) and Treasury bonds (T-bonds) to be auctioned off this week may continue to decline after the Bangko Sentral ng Pilipinas (BSP) chief reiterated that they remain on track to cut borrowing costs for the first time in over three years as early as next month.

The Bureau of the Treasury (BTr) will auction off PHP 20 billion in T-bills on Monday, or PHP 6.5 billion each in 91- and 182-day papers and PHP 7 billion in 364-day debt.

On Tuesday, the government will offer PHP 30 billion in reissued 10-year T-bonds with a remaining life of nine years and six months.

Yields on the T-bills and T-bonds to be offered this week could track the broad drop in secondary market yields seen on Friday after Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. reiterated the possibility of an August rate cut, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Secondary market yields ended mostly lower on Friday on profit-taking after US Treasuries rallied following softer June US consumer inflation data, which bolstered expectations that the US Federal Reserve would kick off its own policy easing cycle by September.

The reissued 10-year bonds on offer this week could see strong demand and fetch yields ranging from 6.2% to 6.3%, the trader added.

At the secondary market on Friday, the rates of the 91-day and 364-day T-bills went down by 3.07 basis points (bps) and 3.68 bps week on week to end at 5.6845% and 6.0480%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website. Meanwhile, the 182-day T-bill’s yield went up by 1.7 bps week on week to 5.9839%.

On the other hand, the rate of 10-year bond dropped by 26.13 bps week on week to 6.2503%.

Last week, Mr. Remolona said the better-than-expected June inflation print gives them “a bit more scope for easing” in their Aug. 15 review.

Headline inflation eased to 3.7% in June from 3.9% in May. This was below the 3.9% median estimate in a BusinessWorld poll of 14 analysts. The June consumer price index (CPI) was within the BSP’s 3.4-4.2% forecast for the month, and also marked the seventh straight month that inflation settled within the central bank’s 2-4% annual target.

For the first six months, the CPI averaged 3.5%, slightly faster than the BSP’s 3.3% full-year forecast.

The BSP last month kept its policy rate at a 17-year high of 6.5% for a sixth straight meeting after raising interest rates by a cumulative 450 bps from May 2022 to October 2023.

Meanwhile, US consumer prices fell for the first time in four years in June amid cheaper gasoline and moderating rents, firmly putting disinflation back on track and drawing the Federal Reserve another step closer to cutting interest rates in September, Reuters reported.

The consumer price index dipped 0.1% last month, the first drop since May 2020, after being unchanged in May, the Labor department’s Bureau of Labor Statistics said.0.4% in May.

In the 12 months through June, the CPI climbed 3%, the smallest gain since June 2023. That followed a 3.3% advance in May. Economists polled by Reuters had forecast the CPI ticking up 0.1% and gaining 3.1% year on year.

Last week, the BTr raised PHP 20 billion as planned from the T-bills it auctioned off as total bids reached PHP 43.185 billion, or more than twice as much as the amount on offer.

Broken down, the Treasury borrowed PHP 6.5 billion as programmed from the 91-day T-bills as tenders for the tenor reached PHP 14.18 billion. The average rate for the three-month paper rose by 1.2 bps week on week to 5.698%. Accepted rates ranged from 5.65% to 5.724%.

The government likewise made a full PHP 6.5-billion award of the 182-day securities, with bids reaching PHP 15.56 billion. The average rate for the six-month T-bill stood at 5.968%, inching up by 0.9 bp from the previous week, with accepted rates at 5.92% to 5.995%.

Lastly, the Treasury raised the planned PHP 7 billion via the 364-day debt papers as demand for the tenor totaled PHP 13.445 billion. The average rate of the one-year debt increased by 2.3 bps to 6.073%. Accepted yields were from 6.03% to 6.095%.

Meanwhile, the reissued 10-year bonds to be offered on Tuesday were last auctioned off on June 11, where the government raised just PHP 26.225 billion out of its PHP 30-billion offer at an average rate of 6.754%, 50.4 bps above the 6.25% coupon rate.

The BTr wants to raise PHP 215 billion from the domestic market this month, or PHP 100 billion from T-bills and PHP 115 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. — AMCS with Reuters