Rates of T-bills, bonds may move sideways on Fed bets, BSP meet


RATES of government securities on offer this week may move sideways on slower US inflation in July, which could cause the US Federal Reserve to be less aggressive, and expectations that the Bangko Sentral ng Pilipinas (BSP) will continue increasing borrowing costs at their meeting this week.

The Bureau of the Treasury (BTr) will offer P15 billion in Treasury bills (T-bills) on Monday, made up of P5 billion each in 91-, 182-, and 364-day debt papers.

On Tuesday, the BTr will auction off P35 billion in reissued 10-year Treasury bonds (T-bonds) with a remaining life of nine years and 10 months.

The first trader said the 91- and 182-day tenors will attract more bids, which could lead to their rates moving sideways with a downward bias, while lower demand for the 364-day tenor could cause an uptick in yields.

Meanwhile, the reissued 10-year bonds could fetch yields ranging from 5.90% to 6.1%, the trader said.

“The US CPI (consumer price index) printed lower than expected and the market continues digest how this will shape US Federal Reserve’s rate hikes in the months to come,” the first trader said.

The second trader said the 10-year bond on offer this week could be priced at about 5.80% to 5.95% amid low supply of the tenor.

“Similar to previous weeks, I think this week’s reissue of 10-year bonds will be awaited by the market. The past few days have seen a scarcity of offers of this particular security. It was last traded at 5.90% and we have been hearing some clients looking for this particular security but have not filled their requirement,” the trader said.

“The recent lower CPI print in the US has also taken away some pressure on rates moving higher and we see this as bond supportive,” the second trader added.

The third trader sees T-bill rates rising by 5-15 basis points (bps) from those seen at the previous auction and the reissued 10-year papers to fetch yields ranging from 5.90% to 6.125% on expectations of a 50-bp hike from the BSP Monetary Board at their Aug. 18 meeting.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said T-bill yields could rise, while the T-bonds on offer could fetch lower rates to track secondary market levels. 

The average rise in US consumer and producer prices slowed in July, which could indicate that inflation has peaked and lead to less aggressive hikes from the Federal Reserve.

The US consumer price index ended flat month on month last July from 1.3% in June. On an annual basis, consumer inflation rose by 8.5% in July, slower than 9.1% in June.

Meanwhile, the producer price index for final demand declined by 0.5% last month after climbing by 1% in June. In the 12 months through July, it increased by 9.8% after rising by 11.3% in June.

The Fed has raised its key rates by 225 bps since March to temper soaring inflation.

Back home, the majority of 18 analysts polled by BusinessWorld last week expect the Monetary Board to raise benchmark rates on Aug. 18, while two see no changes to borrowing costs.

Of the 16 analysts expecting a rate hike, 13 see a 50-bp increase while three anticipate a 25-bp move.

BSP Governor Felipe M. Medalla earlier said the central bank’s policy-setting Monetary Board may hike rates by 50 bps at their Aug. 18 meeting after inflation accelerated further in July.

Headline inflation stood at 6.4% in July, faster than the 6.1% in June and 3.7% a year ago.

For the first seven months, inflation averaged by 4.7%, higher than the 4% seen in the same period in 2021 and the central bank’s 2-4% target for the year but lower than its 5% forecast.

The Monetary Board has raised rates by a total of 125 bps since May, including a 75-bp off-cycle hike last month, amid sustained and broadening inflation pressures exacerbated by a weakening peso due to the Fed’s aggressive tightening.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills were quoted at 2.0768%, 3.0247%, and 3.6568%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website. Meanwhile, the 10-year bond fetched a yield of 5.933%.

Last week, the Treasury raised P15 billion as planned from its auction of T-bills, with bids reaching P43.77 billion.

Broken down, the Treasury made a full P5-billion award of its offer of 91-day securities as the tenor attracted P18.69 billion in bids. The average rate of the three-month paper went down by 24 bps to 1.85%. Accepted rates ranged from 1.825% to 1.875%.

The government also borrowed P5 billion as planned via the 182-day securities as tenders reached P17.17 billion. The average rate of the tenor rose by 2.3 bps to 3.211%. Awarded rates were from 3.19% to 3.25%.

Lastly, the BTr raised P5 billion from the 364-day debt papers as programmed, with demand for the tenor reaching P7.91 billion. The tenor’s average rate rose by 15.5 bps to 3.635%, with the government accepting offers with yields from 3.45% to 3.769%.

Meanwhile, the reissued 10-year papers to be offered on Tuesday were last auctioned off on July 19, where the BTr made a full P35-billion award of the papers at an average rate of 6.865%.

The Treasury wants to raise P215 billion from the domestic market this month, or P75 billion through T-bills and P140 billion via T-bonds.

The government borrows from local and external sources to help fund a budget deficit capped at 7.6% of gross domestic product this year. — Diego Gabriel C. Robles