T-bill, bond rates to track secondary market levels

RATES of Treasury bills (T-bills) and bonds (T-bonds) on offer this week could track secondary market movements on expectations that benchmark borrowing costs will be held steady here and in the United States in the near term.

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 25 billion in reissued 10-year T-bonds that have a remaining life of nine years and three months.

T-bill rates could track the week-on-week declines seen at the secondary market amid expectations that the US Federal Reserve will pause its rate hike cycle at its June 13-14 review, which could be matched by the Bangko Sentral ng Pilipinas (BSP) when it meets on June 22, 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 down by 3.3 basis points (bps), 4.3 bps, and 5.53 bps week on week to end at ​5.79%, 5.8632%, and 5.8961% respectively, based on the PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website.

The US central bank has raised rates by 500 bps since March 2022, bringing the fed funds rate to 5%-5.25%. Its latest move was a 25-bp hike at its May 2-3 review.

For its part, the BSP on May 18 paused its tightening cycle and signaled that borrowing costs could remain unchanged at its next two to three meetings.

The Monetary Board on Thursday kept its policy rate unchanged at 6.25%. Interest rates on the overnight deposit and lending facilities were also maintained at 5.75% and 6.75%, respectively.

This is the first time the BSP left rates untouched after nine meetings. Since it began its aggressive monetary tightening cycle in May 2022, the central bank had raised borrowing costs by 425 bps.

Meanwhile, the 10-year papers saw its yield rise by 15 bps week on week to 5.9397% at the secondary market due to a possible cut in banks’ reserve requirement ratio (RRR) next month, Mr. Ricafort noted, which could likewise lead to an increase in the average rate of this week’s T-bond offer.

BSP Governor Felipe M. Medalla earlier said they could cut banks’ reserve ratios next month. The RRR for big banks is currently at 12%, while the ratios for thrift and rural lenders are at 3% and 2%, respectively.

Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion likewise said in a report that the T-bond rates could climb following the expected rise in the benchmark US 10-year bond rate due to pressure from the sell-off in US T-bills, which are vulnerable to default risk if debt ceiling negotiations are not settled.

“Lacking any breakthrough, our traders sense the market will just stay defensive with yields gradually probing higher in sync with the US treasuries. For the BTr’s nine-year bond auction, the early bid rate indication is in the range of 5.875%-6%,” he said.

Last week, the BTr raised PHP 15 billion as planned from the T-bills as the offer was more than four times oversubscribed, with total bids reaching PHP 60.67 billion.

Broken down, the Treasury borrowed PHP 5 billion as planned via the 91-day T-bills, with tenders reaching PHP 14.062 billion. The average rate of the three-month papers went down by 9.7 bps to 5.777%, with accepted rates ranging from 5.75% to 5.8%.

The government also made a full PHP 5-billion award of the 182-day securities as bids reached PHP 20.08 billion. The six-month tenor was quoted at an average rate of 5.898%, down by 9.3 bps, with accepted rates from 5.88% to 5.918%.

Lastly, the BTr raised the programmed PHP 5 billion from the 364-day debt papers as demand for the tenor reached PHP 26.528 billion. The average rate of the one-year T-bill fell by 8.3 bps to 5.945%. Accepted yields were from 5.928% to 5.95%.

Meanwhile, the reissued 10-year T-bonds to be auctioned off on Tuesday were last offered on May 9, where the government raised the programmed PHP 25 billion at an average rate of 5.732%. Accepted yields ranged from 5.65% to 5.76%.

The Treasury wants to raise PHP 185 billion from the domestic market this month, or PHP 60 billion via T-bills and PHP 125 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