T-bill, bond rates to drop

RATES of Treasury bills and bonds on offer this week could track the decline seen at the secondary market amid softer US inflation, which may mean less aggressive tightening from the US Federal Reserve.

The Bureau of the Treasury (BTr) will auction off PHP 15 billion in Treasury bills (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 seven-year Treasury bonds (T-bonds) with a remaining life of six years and two months.

T-bill and T-bond rates may track the decline in secondary market yields on Friday after softer US inflation data supported dovish Fed expectations, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

A trader said in an e-mail on Friday the decline in secondary market yields came amid a stronger peso recently and the release of US inflation data.

The trader sees T-bonds fetching yields of 6.2% to 6.3%

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills went down by 12.95 basis points (bps), 10.28 bps, and 10.45 bps week on week to end at 5.9793%, 6.0911%, and 6.1789%, respectively, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates data published on the Philippine Dealing System’s website.

Meanwhile, the seven-year T-bonds declined by 26.46 bps week on week to yield 6.2714%.

US consumer prices rose in June as headline and core inflation continue to subside, but probably not fast enough to dissuade the Federal Reserve from resuming raising interest rates this month, Reuters reported.

In the 12 months through June, the consumer price index (CPI) advanced 3%, making the smallest year-on-year increase since March 2021 and followed a 4% rise in May.

Meanwhile, the US producer price index (PPI) for final demand edged up by 0.1% in May. This was revised to show the PPI falling 0.4% instead of the previously reported 0.3%.

In the 12 months through June, the PPI gained 0.1%. This was the smallest year-on-year rise since August 2020 and followed a 0.9% rise in May.

The Fed paused its tightening cycle in June after hiking its benchmark rate by a cumulative 500 bps to a range between 5% and 5.25%.

The US central bank will next meet on July 25-26 to review policy.

On the other hand, the peso closed at a fresh three-month high of PHP 54.40 versus the dollar on Friday, strengthening by 11 centavos from Thursday’s P54.51 finish, data from the Bankers Association of the Philippines’ website showed.

This was the peso’s strongest close since its PHP 54.40-per-dollar finish on April 5.

Last week, the BTr raised just PHP 14.417 billion via the T-bills it auctioned off on Monday, a tad short of the PHP 15-billion program, even as total bids reached PHP 27.56 billion.

Broken down, the Treasury made a full P5-billion award of the 91-day T-bills as tenders for the tenor reached PHP 11.128 billion. The average rate of the three-month papers went down by 17.7 bps to 5.973%, with accepted rates ranging from 5.92% to 6.01%.

The government also raised the PHP 5 billion as planned from the 182-day securities as bids reached PHP 8.328 billion. The average rate for the six-month T-bill stood at 6.266%, steady from the previous week, with accepted rates from 6.168% to 6.323%.

Meanwhile, the BTr raised just PHP 4.417 billion via the 364-day debt papers out of the PHP 5 billion on the auction block, even as demand for the tenor reached PHP 8.104 billion. The average rate of the one-year T-bill climbed by 5.3 bps to 6.339%. Accepted yields were from 6.198% to 6.375%.

On the other hand, the reissued seven-year T-bonds to be auctioned off on Tuesday were last offered on March 28, where the government raised PHP 25 billion as planned. The papers were awarded at an average rate of 6.162%.

The BTr wants to raise PHP 180 billion from the domestic market this month, or PHP 60 billion via T-bills and PHP 120 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