Treasury bills, bonds may fetch mixed rates as Fed view shifts

RATES of the Treasury bills (T-bills) and Treasury bonds (T-bonds) to be offered this week could end mixed following hawkish signals from the US Federal Reserve.

The Bureau of the Treasury (BTr) will auction off P22 billion in T-bills on Monday, or P7 billion in 91-day securities and P7.5 billion each in 182- and 364-day papers.

On Tuesday, the government will offer P35 billion in a dual-tenor T-bond offering, or P20 billion in reissued seven-year papers with a remaining life of four years and eight months, and P15 billion in reissued 10-year securities with a remaining life of nine years and five months.

T-bill and T-bond rates could follow the mixed week-on-week movements seen at the secondary market after Fed Chair Jerome H. Powell signaled that a December rate cut could be unlikely, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“Yields on government securities traded flat to 2 basis points (bps) higher as players were spooked by the hawkish Fed cut. Bullish sentiment remains intact though, and players are merely playing it safe heading into [this] week’s five-year and 10-year auction,” a trader said in an e-mail.

The trader said the bond offerings will likely be “well received,” with the reissued seven-year papers expected to fetch rates of 5.635% to 5.675% and the reissued 10-year debt seen drawing bid yields of 5.9% to 5.95%.

At the secondary market on Friday, yields on the 91- and 182-day T-bills went down by 3.12 bps and 0.11 bp week on week to end at 4.8951% and 5.0966%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data as of Oct. 30 published on the Philippine Dealing System’s website. On the other hand, the 364-day paper rose by 1.55 bps to close at 5.1781%.

Meanwhile, the seven-year bond increased by 1.14 bps week on week to end at 5.8366%, while the five-year debt, the benchmark tenor closest to the remaining life of the reissued papers to be offered this week, inched up by 0.23 bp to end at 5.7025%.

Lastly, the 10-year bond went down by 4.12 bps week on week to finish at 5.9382%.

On Wednesday, after the Fed’s policy-setting committee voted 10-2 to lower its benchmark interest rate to the 3.75%-4% range, Mr. Powell delivered an unusually clear warning to markets: given “strongly differing views” about how to proceed in December, he said, a rate cut was “not a foregone conclusion, far from it,” Reuters reported.

Financial markets pared what had been near-certain pricing for a December rate cut after Mr. Powell’s remarks, although bets still reflect twice as high a chance of a rate cut as none.

A clutch of Federal Reserve bank presidents on Friday aired their discomfort with the US central bank’s decision to cut interest rates, even as influential Fed Governor Christopher Waller made the case for more policy easing to shore up a weakening labor market.

This yawning divide within the Fed’s policymaking ranks poses a challenge for Mr. Powell in forging a consensus in his final six months as the chair.

While it is not unusual for Fed policymakers to differ on policy, particularly when the economic data is mixed, the frank expression of that disagreement and the explicit focus on what the Fed ought to do at its next meeting, on Dec. 9-10, was striking.

Last week, the BTr raised P25 billion from the T-bills it auctioned off, above the P22-billion plan, as the offer was nearly four times oversubscribed, with total bids reaching P85.365 billion.

Broken down, the Treasury borrowed P7 billion as planned via the 91-day T-bills as total tenders for the tenor reached P29.555 billion. The three-month paper was quoted at an average rate of 4.858%, dropping by 2.6 bps from the previous auction. Yields accepted were from 4.8% to 4.878%.

Meanwhile, the government upsized the award for the 182-day securities to P10.5 billion, above the P7.5-billion plan, as the tenor drew demand amounting to P33.45 billion. The average rate of the six-month T-bill was at 5.044%, down by 1.4 bps from the previous week, with accepted rates ranging from 5% to 5.058%.

Lastly, the Treasury sold the programmed P7.5 billion in 364-day debt as tenders for the tenor totaled P22.36 billion. The average rate of the one-year T-bill inched down by 0.4 bp to 5.093%. Bids awarded carried yields from 5.02% to 5.128%.

Meanwhile, the reissued seven-year bonds to be auctioned off this week were last offered on Sept. 9, where the government raised P30 billion as planned at an average rate of 5.772%, well below the 6.375% coupon rate.

On the other hand, the reissued 10-year bonds were last sold on Oct. 7, where the BTr awarded P20 billion as planned at an average rate of 6.043%, well below the 6.375% coupon rate.

The BTr is looking to raise P158 billion from the domestic market this month, or P88 billion via T-bills and P70 billion through T-bonds.

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