T-bill rates rise across all tenors ahead of Fed’s policy meeting

The government made a full award of the Treasury bills (T-bills) it offered on Monday even as rates inched up across all tenors amid slightly weaker demand and ahead of the US Federal Reserve’s policy meeting this week.

The Bureau of the Treasury (BTr) raised PHP 20 billion as planned from the T-bills it auctioned off on Monday as total bids reached PHP 35.99 billion, or almost twice the amount on offer. Demand this week was lower than the PHP 47.4 billion in tenders recorded for the July 22 T-bill auction.

Broken down, the BTr borrowed PHP 6.5 billion as programmed from the 91-day T-bills as tenders for the tenor reached PHP 12.01 billion. The three-month papers were quoted at an average rate of 5.779%, 3.6 basis points (bps) higher than the 5.743% recorded last week. Accepted rates ranged from 5.759% to 5.799%.

The government likewise made a full PHP 6.5-billion award of the 182-day securities as bids for the tenor reached PHP 12.12 billion. The average rate for the six-month T-bill stood at 6.014%, up by 2.3 bps from the 5.991% fetched last week, with accepted rates at 5.95% to 6.042%.

Lastly, the Treasury raised the planned PHP 7 billion via the 364-day debt papers as demand totaled PHP 11.86 billion. The average rate of the one-year debt increased by 2.7 bps to 6.108% from the 6.081% quoted for the tenor last week. Accepted yields were from 6.04% to 6.16%.

At the secondary market before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.7294%, 6.0390%, and 6.1583%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

The T-bills on offer on Monday fetched higher rates across the board due to slower buying momentum as the market turned defensive ahead of the Fed’s policy meeting this week, a trader said in a phone interview.

“A possible 25-bp local policy rate cut as early as Aug. 15 led to some locking in of longer-term interest rates by some investors,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort added in a Viber message.

T-bill yield movements were also driven by expectations of Bangko Sentral ng Pilipinas (BSP) and Fed rate cuts this year, he said.

The Fed is widely expected to keep its target rate at the current 5.25%-5.5% range for the eighth straight time at their July 30-31 meeting. However, markets are awaiting more hints from Fed Chair Jerome H. Powell on the central bank’s easing cycle, which investors expect to begin by September.

Meanwhile, Finance Secretary Ralph G. Recto, who is also a member of the central bank’s policy-setting Monetary Board, last week said the country is on track for a cut in benchmark interest rates this year due to easing inflation, though the timing would be up to the central bank, Reuters reported.

The central bank, which has kept interest rates steady at 6.5% in its last six meetings, has previously flagged a possible cut of 25 bps at its Aug. 15 meeting as it sees inflation easing in the second half.

BSP Governor Eli M. Remolona, Jr. earlier said the Monetary Board could reduce borrowing costs by 25 bps in the third quarter and by another 25 bps in the fourth quarter. Next month’s review is the only meeting scheduled this quarter.

The central bank last slashed benchmark borrowing costs by 25 bps in November 2020 to bring the policy rate to a record low of 2% to boost economic activity during the height of the coronavirus pandemic.

Monday’s auction was the last T-bill offering for July. The Treasury raised PHP 102.1 billion from the short-term debt papers versus the PHP 100-billion program as it made full awards of all its offerings and even upsized its award at one auction.

On Tuesday, the BTr will offer PHP 25 billion in reissued 20-year Treasury bonds with a remaining life of three years and one month.

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. — A.M.C. Sy with Reuters