Treasury bill, bond rates may be mixed before Fed policy meeting

Rates of Treasury bills (T-bill) and Treasury bonds (T-bond) on offer this week may be mixed as the market awaits signals from the US Federal Reserve’s policy review.

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 30 billion in reissued 10-year T-bonds with a remaining life of nine years and seven months.

T-bill and T-bond rates could track the mixed movements in secondary market yields, which came amid the peso’s recovery against the greenback late last week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

On Friday, the local unit closed at PHP 58.52 per dollar, strengthening by 9.1 centavos from its PHP 58.611 finish on Thursday, Bankers Association of the Philippines data showed. This came after it hit a new 19-month low of PHP 58.78 against the greenback on Wednesday.

Year to date, the peso has weakened by PHP 3.15 from its end-2023 close of PHP 55.37 versus the greenback.

“The government securities market traded light today as most were cautious ahead of the US nonfarm payrolls tonight. A few profit takers were seen in the morning session. However, some speculative buyers emerged before the session’s close,” a trader said in an e-mail on Friday.

At the secondary market on Friday, the 91-day T-bill went down by 3.18 basis points (bps) week on week to yield 5.7038%, based on PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website. Meanwhile, the 182-day and 364-day T-bills went up by 4.07 bps and 1.61 bps to end at 6.0003% and 6.0814%, respectively.

For its part, the yield on the 10-year paper went down by 5.69 bps week on week to end at 6.6947%.

Meanwhile, the trader expects the reissued T-bonds on offer on Tuesday to fetch yields ranging from 6.6% to 6.7%.

“The markets will also take cues from any adjustments in the Fed’s rate estimates at the next monetary policy-setting meeting,” Mr. Ricafort added.

The US central bank will review its policy settings on June 11-12, where it is expected to keep the fed fund rates at the 5.25%-5.5% range for a seventh straight meeting.

The world’s largest economy created a lot more jobs than expected last month, suggesting that the Federal Reserve could take time in starting its easing cycle this year, Reuters reported.

US nonfarm payrolls expanded by 272,000 jobs last month, data showed, while revisions showed 15,000 fewer jobs created in March and April combined than previously reported. Economists polled by Reuters had forecast payrolls advancing by 185,000.

Average hourly earnings rose 0.4% after having slowed to a 0.2% rate in April. Wages increased 4.1% in the 12 months through May following an upwardly revised 4% annual rise the prior month.

The unemployment rate, however, edged up to 4% from 3.9% in April, breaching a level that had previously held for 27 straight months.

Following the jobs data, the rate futures market has priced in just one cut of 25 basis points this year, either at the November or December meeting, according to LSEG’s rate probability app.

The chances of a rate cut in September declined to about 50.8% post-jobs, from around 70% late on Thursday.

Last week, the BTr raised P15 billion as planned from the T-bills it offered as total bids reached PHP 43.976 billion or almost thrice the amount on the auction block.

Broken down, the Treasury borrowed PHP 5 billion as programmed from the 91-day T-bills as tenders for the tenor reached PHP 19.066 billion. The average rate for three-month paper went down by 2.1 bps to end at 5.698% from the previous auction. Accepted rates ranged from 5.67% to 5.71%.

The government likewise made a full P5-billion award of the 182-day securities, with bids reaching P11.91 billion. The average rate for the six-month T-bill stood at 5.904, up by 1.8 bps, with accepted rates at 5.895% to 5.913%.

Lastly, the Treasury raised the planned P5 billion via the 364-day debt papers as demand for the tenor totaled P13 billion. The average rate of the one-year debt inched up by 0.3 bp to 6.046%. Accepted yields were from 6.035% to 6.055%.

Meanwhile, the reissued 10-year bonds to be auctioned off on Tuesday were last offered on May 7, where the government raised the planned P30 billion at an average rate of 6.825%, up by 38.6 bps from 6.439% fetched for the previous reissue on April 8 and also 57.5 bps above the 6.25% coupon for the series.

The BTr wants to raise PHP 180 billion from the domestic market this month, or PHP 60 billion from T-bills and PHP 120 billion via T-bonds.

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