T-bill, bond rates may drop on dovish BSP bets

RATES of Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week could be lower amid bets of a pause in the Bangko Sentral ng Pilipinas’ (BSP) tightening after headline inflation eased in April.

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 13-year T-bonds that have a remaining life of 12 years and 11 months.

T-bill rates could inch down this week following the decline seen in the secondary market amid a possible pause in the central bank’s rate hike cycle, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“With faster headline disinflation leading the way despite core refusing to wilt, and year-end headline inflation forecasts spot on the BSP’s target range, investors’ upbeat mood cannot be denied,” Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a report.

At the secondary market on Friday, the 91-, 182-, and 364- day T-bills went down by 3.59 basis points (bps), 0.43 bp, and 20 bps week on week to end at ​5.9167%, 6.0570%, and 5.9943% respectively, based on the PHP BVAL Reference Rates data published on the Philippine Dealing System’s website.

“The upcoming 13-year Treasury bond auction yield could be similar to the 12-year PHP BVAL yield at 5.86% as of May 12, 2023 (down by 0.11 bp),” Mr. Ricafort added.

BSP Governor Felipe M. Medalla last month said the Monetary Board could consider holding rates steady at their May 18 policy meeting if inflation eased further in April.

The BSP has raised benchmark interest rates by 425 bps since May 2022 to help bring down elevated inflation, with its policy rate now at a 16-year high of 6.25%.

Headline inflation eased to 6.6% in April, the slowest in eight months or since the 6.3% print in August 2022, data from the Philippine Statistics Authority showed.

For the first four months, inflation averaged at 7.9%, still above the BSP’s 2-4% target and 6% forecast for the year.

Mr. Asuncion expects demand for long-term tenors to continue rising, but investors “may opt to diversify shorter tenors.”

“The BSP’s pause or any clear signal of an imminent pause is like giving carte blanche to investors to overweight the curve’s belly and short duration,” he said.

Last week, the Treasury raised just PHP 11.09 billion from its offer of T-bills, lower than the PHP 15-billion program, even with total bids reaching PHP 45.354 billion.

Broken down, the Treasury borrowed just PHP 3.06 billion via the 91-day T-bills despite tenders for the tenor reaching PHP 10.628 billion, above the P5-billion plan. The average rate of the three-month papers went down by 10.90 bps to 5.891%, with accepted rates ranging from 5.888% to 5.95%

The government also made a partial PHP 3.03-billion award of the 182-day securities versus the PHP 5-billion program, with demand at PHP 13.14 billion. The six-month paper fetched an average rate of 6.109%, 11.60 bps higher than the 5.993% seen for the last successful award of the tenor on April 24, with accepted rates from 6.073% to 6.155%.

On the other hand, the BTr raised PHP 5 billion as planned from the 364-day debt papers as bids for the tenor stood at PHP 21.946 billion. The average rate of the one-year T-bill went down by 3.60 bps to 6.211%, and accepted rates were from 6.19% to 6.245%.

Meanwhile, the reissued 13-year T-bonds to be auctioned off on Tuesday were first offered on April 18, where the government raised just PHP 19.475 billion out of the PHP 25-billion program.

The bonds were awarded a coupon rate of 6.25%, with the average rate at 6.24%. Accepted rates were at 6.1% to 6.35%.

The Treasury wants to raise PHP 175 billion from the domestic market this month, or PHP 75 billion via T-bills and PHP 100 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. — By A.M.C. Sy