T-bill, bond rates likely to drop

RATES of Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week may go down as markets widely expect the US Federal Reserve to begin its easing cycle this month.

The Bureau of the Treasury (BTr) will auction off P20 billion in T-bills on Monday, or P6.5 billion in 91- and 182-day papers and P7 billion in 364-day debt.

On Tuesday, the government will offer P30 billion in reissued 20-year T-bonds with a remaining life of three years and one day.

Yields on the T-bills and T-bonds on offer this week may inch down to mirror the slight week-on-week declines in secondary market rates, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The reissued bonds could fetch yields ranging from 5.975% to 6.05%, a trader said in an e-mail.

At the secondary market, the 91-, 182-, and 364-day T-bills saw their yields go down by 0.93 basis point (bp), 5.73 bps, and 2.13 bps week on week to end at 5.9154%, 5.9986%, and 6.0825%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data as of Aug. 30 published on the Philippine Dealing System’s website.

The 20-year bond also inched down by 0.21 bp week on week to fetch 6.1759%, while the three-year debt, the tenor closest to the remaining life of the papers on offer this week, slipped by 0.06 bp to end at 6.0171% on Friday.

Yields on government debt mostly dropped amid growing expectations of a rate cut at the US central bank’s Sept. 17-18 meeting following Fed Chair Jerome H. Powell’s dovish speech at the Jackson Hole Symposium last month, Mr. Ricafort said, adding these bets were further supported by key economic data released last week.

Mr. Powell last month endorsed an imminent start to interest rate cuts, saying further cooling in the job market would be unwelcome and expressing confidence that inflation is within reach of the US central bank’s 2% target, Reuters reported.

“The time has come for policy to adjust,” Mr. Powell said in a highly anticipated speech to the Kansas City Fed’s annual economic conference in Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

Meanwhile, US consumer spending increased solidly in July, suggesting the economy remained on firmer ground early in the third quarter and arguing against a half-percentage-point interest rate cut from the Fed this month.

The report from the Commerce department on Friday also showed prices rising moderately last month, curbing inflation.

Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.5% last month after advancing by an unrevised 0.3% in June, the Commerce department’s Bureau of Economic Analysis reported. The increase was in line with economists’ expectations.

After adjusting for inflation, consumer spending gained 0.4% after rising 0.3% in June, and implied that spending retained the momentum from the second quarter, when it helped to boost gross domestic product growth to a 3% annualized rate.

August’s employment report scheduled to be released this Friday will likely determine the size of the September rate cut.

On the other hand, the personal consumption expenditures (PCE) price index rose 0.2% in July after an unrevised 0.1% gain in June, the report also showed.

In the 12 months through July, the PCE price index increased 2.5%, matching June’s gain.

The Fed tracks the PCE price measures for its 2% inflation target, and has maintained its policy rate in the current 5.25%-5.50% range for more than a year, having raised it by 525 bps in 2022 and 2023.

Last week, the BTr raised P22.6 billion from the T-bills, higher than the planned P20 billion, as total bids reached P53.4 billion.

Broken down, the Treasury borrowed P6.5 billion as programmed from the 91-day T-bills as tenders for the tenor reached P14.94 billion. The average rate for the three-month papers rose by 2.6 bps to 5.966%. Accepted rates ranged from 5.934% to 5.999%.

Meanwhile, the government hiked its award of 182-day securities to P9.1 billion versus the original P6.5-billion plan as bids for the tenor reached P19.43 billion. The average rate of the six-month T-bill stood at 5.996%, up by 0.7 bp, with accepted rates at 5.96% to 6.025%.

Lastly, the Treasury raised P7 billion as planned via the 364-day debt papers as demand for the tenor totaled P19.01 billion. The average rate of the one-year debt inched down by 0.01 bp to 6.022%, with accepted rates at 5.985% to 6.06%.

Meanwhile, the reissued 20-year bonds on offer on Tuesday were last auctioned off on July 30, where the BTr raised P30 billion as planned at an average rate of 6.009%, below the 8.625% coupon.

The Treasury plans to raise P195 billion from the domestic market this month, or P80 billion through T-bills and P115 billion via T-bonds. — AMCS with Reuters