T-bill, bond rates to rise following Fed, BSP hikes

RATES of Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week could go up after the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) raised borrowing costs.

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 seven-year T-bonds, which have a remaining life of six years and six months.

T-bill rates could rise this week to track secondary market levels “after the latest local policy rate hike of 25 basis points (bps) to 6.25%, the highest in nearly 16 years, matching the latest Fed rate hike of 25 bps,” 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 10.45 basis points (bps), 11.31 bps, and 13.89 bps week-on-week to end at 4.9666%, 5.5587%, and 5.9397%, respectively, based on the PHP Bloomberg Valuation Service (BVAL) Reference Rates data published on the Philippine Dealing System’s website.

“The upcoming seven-year Treasury bond auction results could be close to the comparable seven-year PHP BVAL yield at 6.13% as of March 24, 2023,” Mr. Ricafort added.

The seven-year bonds inched up by 3.92 bps week on week to end at 6.1251% on Friday.

The Fed last week raised interest rates by 25 bps to the 4.75%-5% range, but said it could consider a pause soon due to turmoil in the US banking system.

The US central bank has raised rates by 475 bps since March 2022.

Meanwhile, the BSP likewise decided to increase benchmark interest rates by 25 bps to anchor inflation expectations.

The latest move brought its policy rate to 6.25%, with cumulative hikes since May 2022 now at 425 bps.

Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a report that demand for the government securities could be affected by the BSP’s hawkish outlook.

“With no imminent rate cuts in store for the BSP, we expect the market will be inclined to a buy on dips in the near term,” Mr. Asuncion said.

BSP Governor Felipe M. Medalla said after Thursday’s meeting that risks to the inflation outlook remain heavily tilted to the upside as supply shortages weigh on food prices. Price pressures may also broaden due to higher transport fares, electricity rates, and above-average wage hikes.

“Further policy tightening will also preserve the buffer against external spillovers amid heightened uncertainty and volatility emanating from financial sector distress in advanced economies,” he said.

Last week, the BTr raised just PHP 10.636 billion from its offering of T-bills, lower than the PHP 15-billion program, as rates climbed across the board.

Broken down, the Treasury made a partial PHP 2.531-billion award of the 91-day T-bills versus the PHP 5-billion program as tenders for the tenor reached only PHP 4.041 billion. The average rate of the three-month paper rose by 28 bps to 4.911%. Accepted rates ranged from 4.74% to 4.974%. 

The government likewise borrowed just PHP 3.7 billion via the 182-day securities, lower than the PHP 5-billion plan, even as demand for the tenor reached PHP 6.97 billion. The six-month T-bill was quoted at an average rate of 5.556%, climbing by 11.90 bps from the previous week, with accepted rates ranging from 5.475% to 5.6%.

Lastly, the BTr raised only PHP 4.406 billion from the 364-day debt papers against the PHP 5-billion program, even as bids for the tenor reached PHP 6.795 billion. The average rate of the one-year paper went up by 14.70 bps to 5.864%. Accepted yields were from 5.775% to 5.95%.

Meanwhile, the reissued seven-year T-bonds to be auctioned off on Tuesday were last offered on Jan. 4, where the government raised the programmed PHP 35 billion. The bonds fetched an average rate of 6.796%, with accepted rates at 6.625% to 6.895%.

The Treasury wants to raise PHP 200 billion from the domestic market this month, or PHP 75 billion via T-bills and PHP 125 billion via T-bonds.

The government borrows from local and external sources to help fund its budget deficit, which is capped at 6.1% of gross domestic product this year. — Aaron Michael C. Sy