T-bill, bond rates may be mixed on easing hopes

RATES of the Treasury bills (T-bills) and Treasury bonds (T-bonds) to be offered this week could end mixed in line with secondary market yields on expectations of monetary easing here and in the United States.

The Bureau of the Treasury (BTr) will auction off P25 billion in T-bills on Monday, or P8.5 billion each in 91-day and 182-day securities and P8 billion in 364-day papers.

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

T-bill yields could go down while the T-bonds could fetch slightly higher rates in line with the week-on-week movements in secondary market rates amid the release of key economic data here and in the US that affected monetary easing bets, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Mr. Ricafort said the August Philippine inflation data released on Friday could still support another rate cut by the Bangko Sentral ng Pilipinas (BSP) within the year despite picking up from the July print.

The spate of US labor data reported last week also bolstered expectations that the US Federal Reserve would deliver its first rate cut this year at its Sept. 16-17 meeting, he added.

At the secondary market on Friday, the rates of the 91-, 182, and 364-day T-bills dropped  by 5.52 basis points (bps), 7.86 bps, and 6.58 bps week on week to end at 5.1769%, 5.3135%, and 5.4699%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data as of Sept. 5 published on the Philippine Dealing System’s website.

Meanwhile, the seven-year bond rose by 2.88 bps week on week to end at 5.9299%, while the five-year debt, the benchmark tenor closest to the remaining life of the reissued bonds on offer on Tuesday, went up by 3.5 bps to close at 5.8445%.

A trader said that market players were mostly positioning on Friday following the Philippine inflation data and as they awaited the US nonfarm payrolls report released later in the day.

Headline inflation picked up to 1.5% in August from 0.9% in July, but was slower than the 3.3% recorded in the same month a year ago, the Philippine Statistics Authority reported on Friday.

The consumer price index (CPI) for last month was slightly higher than the 1.3% median estimate in a BusinessWorld poll of 16 analysts but was within the central bank’s 1%-1.8% forecast for the month.

August also marked the sixth month in a row that inflation settled below the BSP’s 2-4% target range.

For the first eight months, inflation averaged 1.7%, matching the central bank’s forecast for this year.

The Monetary Board on Aug. 28 lowered benchmark borrowing costs by 25 bps for a third consecutive meeting to bring the target reverse repurchase rate to 5%.

The central bank has now slashed rates by a cumulative 150 bps since the start of its rate cut cycle in August 2024.

BSP Governor Eli M. Remolona, Jr. has said that the central bank could deliver one more 25-bp rate cut this year to support the economy if needed, which would likely mark the end of their current easing cycle.

The Monetary Board’s two remaining meetings this year are scheduled in October and December.

Meanwhile, US job growth weakened sharply in August and the unemployment rate increased to nearly a four-year high of 4.3%, confirming that labor market conditions were softening and sealing the case for a Federal Reserve interest rate cut later this month, Reuters reported.

Nonfarm payrolls increased by only 22,000 jobs last month after rising by an upwardly revised 79,000 in July, the US Labor department’s Bureau of Labor Statistics said on Friday. Economists polled by Reuters had forecast payrolls would rise by 75,000 jobs after a previously reported gain of 73,000 in July.

Financial markets expect the Fed will deliver a quarter-percentage-point rate cut at its Sept. 16-17 policy meeting, with two more such moves at its remaining two meetings in 2025. The central bank has kept its benchmark overnight interest rate in the 4.25%-4.50% range since December.

The unemployment rate edged up from 4.2% in July to the highest level since October 2021. The household survey from which the jobless rate is derived showed 436,000 people entered the labor force, but employment only increased by 288,000.

Last week, the BTr raised P25 billion as planned from the T-bills it auctioned off as the offer was more than five times oversubscribed, with total bids reaching P125.504 billion.

Broken down, the Treasury borrowed P8.5 billion as planned via the 91-day T-bills as total tenders for the tenor reached P28.33 billion. The three-month paper was quoted at an average rate of 5.173%, down by 2.2 bps from the previous auction. Yields accepted ranged from 5.08% to 5.183%.

The government likewise raised P8.5 billion as programmed from the 182-day securities as tenders amounted to P47.774 billion. The average rate of the six-month T-bill was at 5.323%, falling by 7.5 bps from the previous week, with accepted yields spanning from 5.288% to 5.35%.

Lastly, the Treasury sold the planned P8 billion in 364-day debt as demand for the tenor totaled P49.39 billion. The average rate of the one-year T-bill dropped by 6.5 bps to 5.457%. Tenders accepted carried rates from 5.45% to 5.46%.

Meanwhile, the reissued seven-year T-bonds to be offered on Tuesday were last auctioned off on July 1, where the government raised P30 billion as planned at an average rate of 5.896%, well below the 6.375% coupon.

The Treasury wants to raise P220 billion from the domestic market this month, or P100 billion through T-bills and P120 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.56 trillion or 5.5% of gross domestic product this year. — Aaron Michael C. Sy with Reuters