Rates of Treasury bills may climb as central banks move to tighten

By Janine Marie D. Soliman,
Reporter

TREASURY BILLS (T-bills) on offer today are expected to fetch higher yields amid expectations of a spike in global interest rates, with several central banks abroad set to tighten borrowing costs.

The government plans to raise as much as P15 billion in the first auction of T-bills for this quarter: P6 billion in 91-day debt papers, P5 billion in 182-day notes and P4 billion in 364-day papers.

A bond trader said in a phone interview on Friday that the offer of the shorter-termed securities will likely be met with higher bids across the board as investors expect a rise in global rates.

“The first T-bills auction for the quarter, we’re expecting rates to rise by 5-10 basis points (bps) across the board. The main driver is we are having a repricing of central bank move expectations, which includes the [US] Fed[eral Reserve,] ECB (European Central Bank,) BoJ (Bank of Japan,) BoE (Bank of England,) and Bank of Canada,” the trader said.

The trader however noted that market players will likely focus on the actions of major central banks, particularly the BoJ, ECB, and the Fed.

Aligned with market expectations, the US central bank in June lifted borrowing costs by a quarter of a percentage point to between 1% and 1.25%.

This is the second time the Fed hiked rates this year since it increased yields at its March Federal Open Market Committee meeting.

Meanwhile, Reuters reported top central banks — namely the Fed, BoE, ECB and BoJ — are now in harmony that interest rates are climbing, with market players taking these movements into consideration.

Similarly, another trader said by phone that yields requested by banks could inch up amid market expectations of higher borrowing costs globally.

“Rates should be a little higher compared to the previous auction because top central banks are more firm in their decision of increasing interest rates,” the trader said in a phone interview on Friday.

The government raised P15 billion as programmed during its offering of Treasury bills last June 19 after total tenders reached P52.96 billion, more than three times the volume of debt papers placed on the auction block.

The 91-day T-bills received a total of P21.679 billion in tenders, nearly four times the programmed P6 billion, with the government fully awarding the papers quoted at an average rate of 2.084%.

Meanwhile, the government also raised P5 billion as planned from the 182-day securities, which fetched a 2.421% yield. Offers came in at P18.902 billion, more than three times the P5 billion offered.

Lastly, the 364-day T-bills were also fully awarded at P4 billion after offers reached P12.376 billion, more than three times the offer. It fetched a rate of 2.875%.

At the secondary market on Friday, the three-month, six-month, and one-year papers fetched 2.8139%, 2.4615%, and 3.2257%, respectively.

Asked on expectations for demand for the papers on offer today, one trader said the T-bills may be oversubscribed two times across the board, with some shorter-termed securities are set to mature this month.

“We are looking at twice the P15 billion offer. We have P22 billion total worth of bills maturing for the month of July so that’s going to boost demand for the auction,” the trader said.

Another trader said investors are expected to prefer the shorter-tenored T-bills.

“If ever, bids will pull back but demand on 91- and 182-days are there — for the 91-days, demand may be twice while for the 182-day notes, not as much demand, maybe one-and-a-half, while for the one-year, not so much since investors would be more focused on shorter tenors,” the trader noted.

For his part, BDO Unibank, Inc.’s Chief Market Strategist Jonathan L. Ravelas said in his weekly outlook: “Short-term and long-term rates moved sideways [last week]… Continue to see rates to move sideways to down…”

The government plans to borrow as much as P195 billion from domestic sources this quarter — through offerings of P105 billion worth of T-bills and P90 billion in Treasury bonds — more than the P180 billion programmed in the second quarter.

It raised P154.82 billion from its sale of securities last quarter, below its original plan to borrow up to P180 billion. Broken down, P90 billion were from T-bills and P64.82 billion from T-bonds. The program capped offers of both papers at P90 billion apiece.