Treasury bill, bond rates may be range-bound on BSP easing bets

RATES of the Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week could end mixed to track secondary market yield movements and as the market expects the Bangko Sentral ng Pilipinas (BSP) to further ease its policy stance as early as next month.

The Bureau of the Treasury (BTr) will auction off P25 billion in T-bills on Monday, or P8 billion each in 91- and 182-day papers and P9 billion in 364-day papers.

On Tuesday, the government will offer P30 billion in reissued 10-year T-bonds with a remaining life of nine years and 11 months.

T-bill auction rates could mirror the week-on-week decline seen for comparable benchmarks at the secondary market following dovish signals from the BSP, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills went down by 1.01 basis points (bps), 4.51 bps, and 1.56 bps week on week to end at 5.5126%, 5.6257%, and 5.6996%, respectively, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data as of May 16 published on the Philippine Dealing System’s website.

BSP Governor Eli M. Remolona, Jr. said earlier this month that they are open to cutting rates by a further 75 bps this year amid cooling inflation. The central bank resumed its easing cycle in April with a 25-bp rate cut, bringing the policy rate to 5.5%.

The Monetary Board’s next meeting is scheduled for June 19.

April inflation slowed to an over five-year low of 1.4% from 1.8% in March and 3.8% a year earlier. For the first four months, it averaged 2%, at the low end of the BSP’s 2-4% annual target.

Meanwhile, the reissued 10-year bond to be auctioned off on Tuesday could see its average rate rise to track the movements of comparable secondary market and US Treasury yields as the trade truce between the US and China could give the US Federal Reserve room to keep rates steady for now, Mr. Ricafort added.

A trader said the T-bond offer could be “well received” and fetch rates ranging from 6.185% to 6.225%.

At the secondary market on Friday, the 10-year bond rose by 2.94 bps week on week to yield 6.1732%, PHP BVAL Reference Rates data showed.

The US-China deal to lower the most aggressive import tariffs between the world’s two largest economies could lessen the impact of their trade war, though the levies left in place are still steep and will leave a mark on the economy, Federal Reserve officials said on Monday last week, Reuters reported.

Federal Reserve Governor Adriana Kugler said the 90-day pause on import levies at levels that threatened to shut down bilateral trade reduces chances that the US central bank will need to lower interest rates in response to an economic slowdown.

In separate comments to the New York Times, Chicago Fed President Austan Goolsbee agreed the weekend deal would lower the impact tariffs have on the economy — for now.

The Fed’s policy-setting Federal Open Market Committee this month kept its benchmark interest rate in the 4.25%-4.5% range where it had been since December. Policymakers said they were unlikely to make a change until it was clear whether tariffs would lead to a new inflation problem, or undercut growth and pose risks to the job market that warranted a reduction in borrowing costs.

Last week, the BTr raised P25 billion as planned from the T-bills it auctioned off as total bids reached P70.345 billion, almost thrice the amount on offer.

Broken down, the Treasury borrowed the programmed P8 billion via the 91-day T-bills on tenders for the tenor reached P23.375 billion. The three-month paper was quoted at an average rate of 5.546%, 2.7 bps lower from the previous auction. Tenders accepted by the BTr carried yields of 5.5% to 5.572%.

The government likewise made a full P8-billion award of the 182-day securities as bids amounted to P29.335 billion. The average rate of the six-month T-bill was at 5.65%, down by 1.7 bps, with accepted rates ranging from 5.623% to 5.668%.

Lastly, the Treasury raised P9 billion as planned via the 364-day debt papers as demand for the tenor totaled P17.635 billion. The average rate of the one-year T-bill decreased by 4.2 bp to 5.655%, with bids accepted having yields of 5.54% to 5.72%.

Meanwhile, the 10-year T-bonds to be auctioned off this week are part of the P300 billion in new benchmark fixed-rate Treasury notes priced on April 15 and issued on April 28. The papers fetched a coupon rate of 6.375% and an average rate of 6.286%.

The Treasury is looking to raise P260 billion from the domestic market this month, or P100 billion via T-bills and P160 billion through T-bonds. — Aaron Michael C. Sy