Treasury bill, bond rates likely to decline further

RATES of the Treasury bill (T-bill) and Treasury bonds (T-bonds) to be offered this week may decline further as hopes for looser monetary conditions here and in the United States grow after the Federal Reserve resumed its easing cycle last week and signaled more cuts to come.

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 P35 billion in a dual-tranche T-bond offering, or P10 billion in reissued seven-year papers with a remaining life of two years and seven months, and P25 billion in reissued 20-year securities with a remaining life of 16 years and nine months.

T-bill rates could drop this week, similar to the decline seen at the secondary market, due to expectations of further monetary easing by both the Bangko Sentral ng Pilipinas (BSP) and the Fed, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

This is after the Fed penciled in more rate cuts this year that could be matched by the BSP, he said.

Meanwhile, a trader said in an e-mail that the T-bonds on offer this week could see good demand, with the reissued seven-year bond fetching rates ranging from 5.585% to 5.625% and the 20-year debt attracting bid yields between 6.275% and 6.325%.

At Wednesday’s meeting, the Fed lowered its policy rate by 25 basis points (bps) to a range of 4%-4.25%, its first cut since December, and signaled a gradual easing cycle in response to mounting labor market concerns, Reuters reported.

At the same time, Fed Chair Jerome H. Powell highlighted “a challenging situation” for policymakers, noting that risks to inflation were tilted to the upside and risks to employment to the downside.

The US central bank’s release on Wednesday of updated quarterly economic projections, including rate forecasts issued in a chart known as the “dot plot,” reflected expectations of more easing this year when compared to the ‘dots’ from the June meeting, with 50 bps in cuts seen before yearend.

Meanwhile, the BSP last month lowered borrowing costs by 25 bps for a third straight meeting, bringing the target reverse repurchase rate to 5%. It has now slashed benchmark rates by a cumulative 150 bps since the start of its easing cycle in August 2024.

BSP Governor Eli M. Remolona, Jr. has said that the policy rate is now at a “sweet spot” in terms of both inflation and output, but left the door open to one last cut this year to support growth if needed, which would likely mark the end of its current easing cycle.

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

At the secondary market on Friday, yields on the 91-, 182-, and 364-day T-bills dropped by 14.38 bps, 1.67 bps, and 4.9 bps week on week to end at 4.9458%, 5.1976%, and 5.3041%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data as of Sept. 19 published on the Philippine Dealing System’s website.

Meanwhile, the seven-year bond dropped by 2.06 bps week on week to yield 5.8705%, while the rate of the three-year paper, the benchmark tenor closest to the remaining life of the bonds on offer, went down by 2.69 bps to 5.6533%.

The 20-year bond’s yield also slipped by 0.48 bp week on week to close at 6.3445% on Friday.

Last week, the government raised P25 billion as planned from its T-bill auction as the offer was more than six times oversubscribed, with total bids reaching P154.154 billion.

Broken down, the Treasury borrowed the planned P8.5 billion via the 91-day T-bills as total tenders for the tenor reached P47.86 billion. The three-month paper was quoted at an average rate of 4.95%, down by 9.6 bps week on week. Yields accepted were from 4.908% to 5%.

The government likewise raised P8.5 billion as programmed from the 182-day securities as tenders amounted to P53.92 billion. The average rate of the six-month T-bill was at 5.148%, easing by 7.4 bps from the previous week, with accepted rates spanning from 5.11% to 5.175%.

Lastly, the Treasury sold P8 billion as planned in 364-day debt as demand for the tenor totaled P52.374 billion. The average rate of the one-year T-bill dropped by 10.4 bps to 5.272%. Tenders awarded carried rates from 5.263% to 5.283%.

The BTr is looking to raise P220 billion from the domestic market this month, or P100 billion via T-bills and P120 billion through 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. — A.M.C. Sy with Reuters