T-bills fetch mostly higher rates on fading hopes of early Fed cut

The government made a full award of the Treasury bills (T-bills) it offered on Monday at mostly higher yields amid expectations of a delayed rate cut from the US Federal Reserve.

The Bureau of the Treasury (BTr) raised PHP 15 billion as planned via its offering of T-bills on Monday as total bids reached PHP 47.415 billion, or more than thrice the amount on the auction block.

Broken down, the Treasury made a full PHP 5-billion award of the 91-day T-bills as tenders for the tenor reached PHP 12.985 billion. The three-month paper was quoted at an average rate of 5.461%, 6.3 basis points (bps) higher than the 5.398% seen last week. Accepted rates ranged from 5.425% to 5.495%.

The government also raised PHP 5 billion as planned from the 182-day securities as bids stood at PHP 13.94 billion. The average rate for the six-month T-bill stood at 5.861%, up by 5.1 bps from the 5.766% fetched last week, with accepted rates at 5.84% to 5.873%.

Lastly, the BTr borrowed the programmed PHP 5 billion via the 364-day debt papers as demand for the tenor totaled PHP 20.58 billion. The average rate of the one-year T-bill inched down by 0.1 bp to 6.075% from the 6.076% quoted last week. Accepted yields were from 6.05% to 6.098%.

At the secondary market on Monday before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.4422%, 5.8126%, and 6.044%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

“The awarded rates reflected the stronger-than-expected US employment reports for January, which bolstered views of further delay in Federal Reserve policy rate cuts,” a trader said in an e-mail.

Signals from Fed Chair Jerome H. Powell that a rate cut in March is unlikely also caused T-bill rates to go up, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The US Federal Reserve can be “prudent” in deciding when to cut its benchmark interest rate, with a strong economy allowing central bankers time to build confidence inflation will continue falling, Fed Chair Jerome H. Powell told the CBS news show 60 Minutes in an interview that aired Sunday night, Reuters reported.

“The prudent thing to do is… to just give it some time and see that the data confirm that inflation is moving down to 2% in a sustainable way,” Mr. Powell said. “We want to approach that question carefully,” with the economy’s current strength keeping the risk of recession reduced as policy makers wait for the final bits of data that will convince them to proceed with rate cuts.

The interview took place on Thursday, before a blowout January jobs report on Friday showed firms added 353,000 new positions, with continued strong wage growth and 3.7% unemployment that has barely budged in two years.

Traders are pricing in less than a 20% chance that the Fed could begin easing rates in March, as compared to a nearly 50% chance a week ago, according to the CME FedWatch tool. The odds for a cut in May have also lengthened.

Fed funds futures now show roughly 120 bps worth of easing priced in for the Fed this year, down from about 150 bps at the end of last year.

The Fed left interest rates unchanged last week, but Mr. Powell told reporters that rates had peaked. Since March 2022, the central bank has raised its policy rate by 525 basis points to the current 5.25% to 5.5% range.

On Tuesday, the BTr will offer PHP 30 billion in reissued five-year Treasury bonds (T-bonds) with a remaining life of four years and 11 months.

The Treasury plans to raise PHP 210 billion from the domestic market this month, or PHP 60 billion via T-bills and PHP 150 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 5.1% of gross domestic product this year or PHP 1.39 trillion. — A.M.C. Sy with Reuters