YIELDS on Treasury bills (T-bills) on offer today are expected to move sideways across the board as investors turn cautious ahead of the US Federal Reserve’s planned bond portfolio reduction.

The government plans to raise as much as P15 billion from T-bills at today’s auction: P6 billion in 91-day debt papers, P5 billion in 182-day notes and P4 billion in 364-day securities.

Bond traders said they expect rates requested by banks to move sideways for all tenors as investors are focusing on the Fed’s plan of trimming their massive bond portfolio, which was highlighted in their Federal Open Market Committee (FOMC) meeting last week.

“Rates will be sideways to slightly up by five basis points (bps) across the board and demand would be concentrated on the short end of the curve and lesser on the one-year tenor because [of] the Fed’s talk of unwinding their portfolio, with speculations that it may happen in September. So most demand would be focused on the three-month papers,” the trader said by phone on Friday.

The Federal Reserve kept interest rates unchanged on Wednesday and said it expected to start winding down its massive holdings of bonds “relatively soon” in a sign of confidence in the US economy.

The Fed kept its benchmark lending rate in a target range of 1% to 1.25%, as expected, and said it was on track to continue the slow path of monetary tightening that has lifted rates by a percentage point since 2015.

In a statement following a two-day policy meeting, the US central bank’s rate-setting committee indicated the economy was growing moderately and job gains had been solid.

It also noted that both overall inflation and a measure of underlying price gains had declined — trends which have worried some policy makers — but that it expected the economy to continue strengthening.

“The committee expects to begin implementing its balance sheet normalization program relatively soon,” the Fed said, adding that it would follow a plan outlined in June to trim its holdings of US Treasury bonds and mortgage-backed securities.

After pushing rates nearly to zero to fight the 2007-2009 financial crisis and recession, the Fed pumped over $3 trillion into the economy in a bond-buying spree to further reduce rates. Its balance sheet has grown to $4.5 trillion.

The statement cemented expectations the Fed will announce at its next policy meeting in September the start of its balance sheet reduction plan, marking the end of a controversial tool that drew criticism from Republican lawmakers in Congress.

Meanwhile, another trader said in a phone interview on Friday they expect bids to move sideways across the board due to lack of catalysts abroad, but noted that “in the local scene, the dollar-peso trading on Monday could affect yields also.”

The government only raised P7.7 billion out of its P15-billion program during an offering of Treasury bills on July 17 after bids by investors rose across the board. The papers, however, were met with P18.6 billion in total tenders.

The 91-day T-bills received a total of P9.162 billion in tenders, above the programmed P6 billion, with the government partially awarding the papers at P4.127 billion that were quoted at an average rate of 2.189%.

Similarly, the government only raised P3.61 billion via the 364-day securities, less than the planned P4-billion borrowing. The papers fetched a 2.995% yield while offers came in at P5.93 billion.

Lastly, the Treasury bureau rejected all bids for the 182-day papers after returns sought by financial firms went as high as 2.679%.

At the secondary market on Friday, the three-month, six-month, and one-year papers fetched 2.9686%, 2.9939%, and 3.0254%, respectively.

“So far, the main factor in this auction is really the Fed. Locally, so far, we have enough liquidity… market will be driven by external factors,” a trader said.

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 was borrowed via Treasury bills and P64.82 billion from Treasury bonds. The program capped offers of both papers at P90 billion apiece. — Janine Marie D. Soliman with Reuters