Yields on Treasury bills, bonds may go down on easing signals

Rates of Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week may decline after a Monetary Board member said the Bangko Sentral ng Pilipinas (BSP) could begin its easing cycle after the US Federal Reserve kicks off its own.

The Bureau of the Treasury (BTr) will auction off PHP 15 billion in T-bills on Tuesday, or PHP 5 billion each in 91-, 182-, and 364-day papers.

On Wednesday, it will offer PHP 30 billion in reissued 20-year T-bonds with a remaining life of 14 years and seven months.

This week’s T-bill and T-bond auctions were moved as Monday, June 17 was declared a holiday in observance of Eid’l Adha or the Feast of Sacrifice.

The rates of T-bills and T-bonds on offer this week could track the decline in secondary market yields following monetary easing comments from Finance Secretary and Monetary Board member Ralph G. Recto after the Fed’s policy meeting, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Secondary market rates were mostly lower on Friday “as profit takers continued to dominate the market. Speculative buying… lacked aggressiveness still amid Finance Chief Recto’s statement on the BSP possibly cutting rates after the Fed,” a trader likewise said in an e-mail on Friday.

The trader expects the reissued T-bonds on offer this week to fetch yields ranging from 6.7% to 6.85% as the market “remains tepid on bonds with tenors of longer than 10 years.”

At the secondary market on Friday, the 91-day, 182-day, and 364-day T-bills went down by 3.69 basis points (bps), 3.09 bps, and 0.36 bp week on week to yield 5.6669%, 5.9694%, and 6.0778%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website.

The yield on the 20-year bond likewise went down by 1.14 bps week on week to end at 6.814%.

The BSP will probably cut its policy rate after the US Federal Reserve, which has signaled it may start easing as late as December, the Finance chief said on Thursday.

Asked if the BSP would begin its easing cycle once the US central bank cuts rates, Mr. Recto said this was “highly probable.”

The Monetary Board has kept its benchmark rate steady at a 17-year high of 6.5% since October 2023 following cumulative hikes worth 450 bps to bring down inflation.

BSP Governor Eli M. Remolona, Jr. has said that the earliest the central bank can begin cutting rates is in August, with a total of 25-50 basis points in easing likely this year.

Mr. Remolona earlier said the BSP does not need to wait for the Fed to begin its own easing cycle.

The Monetary Board’s next policy meeting is on June 27.

Meanwhile, the US central bank on Wednesday kept its benchmark overnight interest rate in the current 5.25%-5.5% range, where it has been since last July, Reuters reported. Fed officials pushed out the start of rate cuts to perhaps as late as December, with policy makers projecting only a single quarter-percentage-point reduction for this year.

Last week, the BTr raised PHP 15 billion as planned from the T-bills it offered as total bids reached PHP 42.385 billion or almost thrice the amount on the auction block.

Broken down, the Treasury borrowed PHP 5 billion as programmed from the 92-day T-bills as tenders for the tenor reached PHP 17.36 billion. The average rate for the three-month paper went down by 3.1 bps to 5.667% from the previous week. Accepted rates ranged from 5.65% to 5.69%.

The government likewise made a full PHP 5-billion award of the 183-day securities, with bids reaching PHP 12.56 billion. The average rate for the six-month T-bill stood at 5.908%, inching up by 0.8 bp, with accepted rates at 5.898% to 5.925%.

Lastly, the BTr raised the planned PHP 5 billion via the 365-day debt papers as demand for the tenor totaled PHP 12.465 billion. The average rate of the one-year debt went down by 0.7 bp to 6.039%. Accepted yields were from 6.015% to 6.065%.

Maturity dates were adjusted across all tenors last week due to the June 12 holiday for Independence Day.

Meanwhile, the reissued 20-year bonds to be auctioned off on Tuesday were last offered on May 14, where the government raised just PHP 11.528 billion out of the PHP 30 billion placed on the auction block. The bonds were awarded at an average rate of 6.95%, 20 bps above the 6.75% 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