Rates of T-bills, bonds to move sideways before Fed meeting

RATES of the Treasury bills (T-bills) and Treasury bonds (T-bonds) to be auctioned off this week may be mixed before the US Federal Reserve’s policy meeting.

The Bureau of the Treasury (BTr) will auction off P22 billion in T-bills on Monday, or P7 billion each in 91- and 182-day papers and P8 billion in 364-day papers.

On Tuesday, the government will offer P30 billion in reissued 10-year T-bonds with a remaining life of eight years and 10 months.

T-bill and T-bond rates could track the mixed movements in the secondary market last week amid expectations that the US central bank can resume its easing cycle this year amid slowing inflation despite the uncertainties brought by the Trump administration’s policies, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The T-bond offer could see “good demand” and fetch rates ranging from 6.175% to 6.225%, a trader said via e-mail.

“The Federal Open Market Committee meeting [this] week will be the next catalyst,” the trader said.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills eased by 2.03 basis points (bps), and 0.6 bp, and 0.21 bp week on week to end at 5.2499%, 5.5675% and 5.792%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website.

Meanwhile, the 10-year bond rose by 2.04 bps week on week to close at 6.2301%.

The US central bank will review its policy settings on March 18-19. Fed policy makers are universally expected to leave rates in their current 4.25%-4.5% range when they meet this week, and traders are also betting against a rate cut at their May meeting, Reuters reported.

Investors will pay particularly close attention to the Fed’s own projections for inflation, unemployment and the path of rates, due to be published at the end of their two-day policy-setting meeting. In December Fed policy makers forecast two interest-rate cuts this year.

Pricing of short-term interest-rate futures still reflects an expectation for a June start to Fed rate cuts, with likelier than not a total of three quarter-point reductions by the end of the year.

Last week, the BTr raised P30.8 billion from the T-bills it auctioned off, higher than the P22-billion plan, as total bids reached P90.598 billion, more than four times as much as the amount on offer.

The strong demand prompted the government to double the accepted noncompetitive bids for the 91- and 182-day securities to P5.6 billion and to P6.4 billion for the 364-day T-bill.

Broken down, the Treasury borrowed P9.8 billion via the 91-day T-bills, higher than the P7-billion plan, as tenders for the tenor reached P35.628 billion. The three-month paper was quoted at an average rate of 5.178%, declining by 10.5 bps from the previous auction, with the BTr only accepting bids with this yield.

The government also made a P9.8-billion award of the 182-day securities, above the programmed P7 billion, as bids stood at P30.05 billion. The average rate of the six-month T-bill was at 5.48%, 13 bps lower than the yield fetched in the previous week, with accepted rates ranging from 5.49% to 5.568%.

Lastly, the Treasury raised P11.2 billion via the 364-day debt papers, more than the P8 billion placed on the auction block, as demand for the tenor totaled P24.92 billion. The average rate of the one-year debt inched up by 0.3 bp to 5.773%, with bids accepted carrying yields of 5.755% to 5.779%.

Meanwhile, the T-bonds to be auctioned off on Tuesday were last offered on Feb. 18, where the BTr raised P30 billion as planned at an average rate of 6.118%, lower than the 6.25% coupon rate.

The Treasury is looking to raise P147 billion from the domestic market this month, or P22 billion from T-bills and P125 billion from T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.54 trillion or 5.3% of gross domestic product this year. — A.M.C. Sy with Reuters