T-bond rates climb on hawkish BSP bets

The government made a full award of the reissued Treasury bonds (T-bonds) it offered on Wednesday at a higher average yield than secondary market levels as investors expect both the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve to keep benchmark interest rates elevated.

The Bureau of the Treasury (BTr) raised PHP 30 billion as planned via the reissued 20-year bonds it auctioned off on Wednesday as total bids reached PHP 51.097 billion.

The bonds, which have a remaining life of 19 years and 11 months, were awarded at an average rate of 6.86%. Accepted yields ranged from 6.8% to 6.9%.

The average rate of the 20-year bonds rose by 6.3 basis points (bps) from the 6.797% fetched for the series’ last award on May 21, but 1.5 bps lower than the 6.875% coupon for the issue.

This was also 2.9 bps higher than 6.831% quoted for the 20-year bond and 5.3 bps above the 6.807% seen for the same bond series at the secondary market before Wednesday’s auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

Wednesday’s award brought the total outstanding volume for the series to PHP 52.7 billion, the Treasury said in a statement.

“The higher rates were expected because of the hawkish sentiment on the BSP and the Fed. For [Thursday’s] rate decision, the BSP is expected stand pat because of sticky inflation and peso’s vulnerability,” a trader said by phone.

T-bond rates rose due to the Fed’s “higher for longer” stance and ahead of the BSP meeting on Thursday as the market awaits new policy signals from local monetary officials, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said in a Viber message.

The BSP is widely expected to maintain its policy stance for a sixth straight meeting on Thursday amid lingering risks to the inflation outlook and a weak peso, analysts said.

All 15 analysts in a BusinessWorld poll last week expect the Monetary Board to keep its policy rate at a 17-year high of 6.5% at its meeting this week.

BSP Governor Eli M. Remolona, Jr. has said the central bank could begin easing its policy stance as early as August and may slash rates by 25-50 bps in the second semester, adding they do not need to wait for the Fed to kick off its own rate cut cycle.

The US central bank this month left its target rate unchanged at the 5.25%-5.5% range for a seventh straight meeting, with Fed officials pricing in just one rate cut this year as late as December.

Fed policy makers continue to signal they are in no rush, with Fed Governors Lisa Cook and particularly Michelle Bowman stressing that decisions will depend on data, Reuters reported.

Ms. Bowman on Tuesday said that holding the policy rate steady “for some time” will likely be enough to bring inflation under control. She also reiterated her willingness to raise borrowing costs if needed.

Ms. Cook, for her part, said it would be appropriate to cut interest rates “at some point” given significant progress on inflation and a gradual cooling of the labor market. She remained vague, however, about the timing of the easing.

Wednesday’s T-bond auction was the last offering for June. The BTr raised PHP 110.228 out of the PHP 120-billion program for T-bonds as it made partial awards at two of its four auctions.

Including Treasury bills, the BTr raised PHP 170.228 billion out of its PHP 180-billion domestic borrowing program for the 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