Rates of Treasury bills, bonds to rise as Fed seen to hike further

RATES of government securities on offer this week could climb after minutes of the US Federal Reserve’s latest meeting hinted on less aggressive tightening.

The Bureau of the Treasury (BTr) will auction off 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 also offer P35 billion in reissued 20-year Treasury bonds (T-bonds) with a remaining life of four years and nine months.

A trader said the T-bills and T-bonds on offer this week could fetch higher yields.

“Our indication for the 91-day T-bills next week will most likely move higher by 5 basis points (bps) while the 182- and 364-papers will move by 10-15 bps,” a trader said in a phone call.

For the 20-year bond, the trader said they expect yields to range between 6.5% and 6.75%.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message that T-bill and T-bond yields could move higher amid less hawkish signals from the Fed.

Analysts from UnionBank Economics Research likewise said in a report that investors are pricing in a 50-bp rate hike at the Fed’s Dec. 13-14 policy meeting.

Minutes of the Fed’s policy meeting this month where they delivered a fourth straight 75-bp hike showed a “substantial majority” of policy makers agreed it would soon be appropriate to slow the pace of rate hikes.

The Fed has raised rates by 375 bps since March in its fight to cool inflation. Its next meeting is on Dec. 13-14.

Back home, the Bangko Sentral ng Pilipinas (BSP) has hiked borrowing costs by 300 bps since May to keep in step with the Fed and rein in rising prices.

Mr. Ricafort also noted that global crude oil prices further eased to near two-month lows, which could help ease inflation.

Brent crude futures settled down $1.71 or 2% to trade at $83.63 a barrel while US West Texas Intermediate crude futures were down $1.66 or 2.1% at $76.28 a barrel.

At the secondary market on Friday, the 91- 182- and 364-day T-bills were quoted at 4.1770%, 4.9237%, and 5.0810%, respectively, based on the PHP BVAL Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the 20-year paper fetched a yield of 7.6584%, while the five-year debt, the tenor closest to the remaining life of the T-bond on offer this week, was quoted at 6.6618%.

Last week, the government partially awarded the T-bills it auctioned off even as bids reached P29.452 billion, higher than the P15-billion offer.

Broken down, the Treasury borrowed P5 billion as planned via the 91-day securities, with tenders for the tenor reaching P17.371 billion. The average rate of the tenor went down by 8.9 bps to 4.375% from 4.464%, with accepted rates ranging from 4.14% to 4.513%.

Meanwhile, the government raised just P3.25 billion from the 182-day T-bills, even as bids hit P7.11 billion, above the P5-billion program. The six-month paper fetched an average rate of 4.921%, up by 8.3 bps from the 4.838% quoted for the previous week’s partial award, with the Treasury accepting offers with yields from 4.88% to 4.95%.

Lastly, the BTr awarded only P2.3 billion in 364-day debt papers, with demand reaching just P4.971 billion, lower than the P5 billion on the auction block. The average rate of the one-year paper rose by 4.2 bps to 5.142% from 5.1%. Accepted rates ranged from 5.125% to 5.15%.

Meanwhile, the reissued 20-year bonds to be offered on Tuesday were last auctioned off on Nov. 8, where the Treasury raised P30.64 billion, less than the programmed P35 billion, even as total bids reached P41.6 billion.

The bonds were awarded at rates ranging from 6.8% to 7.5%, bringing the average to 7.131% or 146.8 bps lower than the 8.599% quoted for the papers when there was first offered on Sept. 4, 2007 and also 149.4 bps below the issue’s 8.625% coupon.

The Treasury plans to raise P135 billion from the domestic market in December, or P30 billion in T-bills and P105 billion in T-bonds.

The government borrows from local and external sources to help plug a budget deficit capped at 7.6% of gross domestic product this year. — L.M.J.C. Jocson