Treasury bill, bond rates may drop on Fed bets

Rates of the Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week are expected to go down in anticipation of the US Federal Reserve’s monetary easing action this month.

The Bureau of the Treasury (BTr) will auction off PHP 20 billion in T-bills on Monday, or PHP 6.5 billion in 91- and 182-day papers and PHP 7 billion in 364-day debt.

On Tuesday, the government will offer PHP 30 billion in reissued seven-year T-bonds with a remaining life of four years and eight months.

Yields on the T-bills and T-bonds on offer this week may track the week-on-week decline in secondary market rates, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The reissued bonds could fetch yields ranging from 5.975% to 6.025%, a trader said in an e-mail.

“All eyes are on tonight’s US jobs data, where the survey has been the lowest in two years. Global markets are basically hinged on the data and could open up the strong resistance at 6% for local bonds,” the trader said on Friday.

At the secondary market, the 91-, 182-, and 364-day T-bills saw their yields go down by 0.04 basis point (bp), 1.07 bps, and 0.91 bp week on week to end at 5.9150%, 5.9879%, and 6.0734%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data as of Sept. 6 published on the Philippine Dealing System’s website.

The seven-year bond also inched down by 0.08 bp week on week to fetch 6.0606%, while the five-year debt, the tenor closest to the remaining life of the papers on offer this week, slipped by 0.12 bp to end at 6.0420% on Friday.

Secondary market yields mostly slipped last week as the market awaited the release of key US economic data, which could affect the Federal Reserve’s policy decision this month, and following slower-than-expected Philippine headline inflation in August, Mr. Ricafort said.

“Softer US economic data could support increased odds of Fed rate cuts in the coming months that could be matched locally,” he added.

Financial markets initially raised the chances of a half-point rate cut at the Fed’s Sept. 17-18 policy meeting to above 50% before slashing them to 25%, CME Group’s FedWatch Tool showed, Reuters reported. The odds of a 25-bp rate reduction increased to 75% from 57% earlier.

The Fed has maintained its policy rate in the current 5.25%-5.5% range for more than a year, having raised it by 525 bps in 2022 and 2023.

Meanwhile, the Bangko Sentral ng Pilipinas (BSP) on Aug. 15 reduced its policy rate by 25 bps to 6.25%, marking its first easing move in nearly four years.

BSP Governor Eli M. Remolona, Jr. has said they could cut rates by another 25 bps within the year. 

Last week, the BTr raised PHP 22.6 billion from the T-bills, higher than the planned PHP 20 billion, as total bids reached PHP 53.105 billion.

Broken down, the Treasury borrowed P6.5 billion as programmed from the 91-day T-bills as tenders for the tenor reached PHP 18.01 billion. The average rate for the three-month papers declined by 1.9 bps to 5.947%. Accepted rates ranged from 5.94% to 5.96%.

Meanwhile, the government hiked its award of 182-day securities to PHP 9.1 billion versus the original PHP 6.5-billion plan as bids for the tenor reached PHP 19.26 billion. The average rate of the six-month T-bill stood at 6.002%, up by 0.6 bp, with accepted rates at 5.98% to 6.02%.

Lastly, the Treasury raised PHP 7 billion as planned via the 364-day debt papers as demand for the tenor totaled PHP 15.835 billion. The average rate of the one-year debt inched up by 1.8 bps to 6.04%, with accepted rates at 6% to 6.055%.

Meanwhile, the reissued seven-year T-bonds on offer on Tuesday were last auctioned off on Aug. 6, where the BTr raised P30 billion as planned at an average rate of 6.107%, below the 6.5% coupon.

The Treasury wants to raise PHP 195 billion from the domestic market this month, or PHP 80 billion through T-bills and PHP 115 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. — AMCS with Reuters