T-bills likely to fetch lower rates

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TREASURY BILLS (T-bill) on offer today are expected to fetch lower rates as market participants continue to price in decelerating inflation, as well as the peso’s recent rally.

The Bureau of the Treasury (BTr) is offering P20-billion worth of T-bills today, broken down into P6 billion each for the three- and six-month papers and another P8 billion for the one-year instruments.

A bond trader said yields on the short-term securities up for auction will likely decline from the previous offer as price increases are expected to return to their normal pace in the coming months.

Last week, the Treasury borrowed P16.72 billion out of the P20 billion it intended to raise at its T-bills auction, rejecting some bids for the shortest tenor as market interest was skewed towards the longer tenors.

Rates of the 91-, 182- and 364-day papers stood at 5.411%, 6.424% and 6.641%, respectively.

Based on the PHP Bloomberg Valuation Service Reference Rates, the three-month, six-month and one-year papers were quoted at 5.798%, 6.436% and 6.644%, respectively, on Friday.

For today’s auction, the trader expects the 91- and 182-day IOUs to fetch rates 10-15 basis points (bp) lower from the previous offer and the 364-day T-bills ending 10 bps lower as inflation is seen to return to the 2-4% target band of the Bangko Sentral ng Pilipinas (BSP) “within first or second quarter of the year.”

Headline inflation eased to 5.1% in December from 6% the previous month as prices of food and transportation grew at a slower pace.

For 2018, inflation averaged 5.2% — faster than the central bank’s 2-4% target range and the highest since 2008’s 8.2%.

“On the interest rate increase in the US, we might see them increase their rates by one to two times this year, from the previous [expectations of] two to three,” the trader added.

Federal Reserve Chairman Jerome Powell recently said the US central bank will be “patient” with its monetary policy as it watches how the economy performs this year.

Meanwhile, another trader said the rates of the three- and six-month securities will be lower by 10-20 bps from the previous auction, while the three-month T-bill’s yield will slide by 5-10 bps from last week, as the peso remains strong.

The peso has been strengthening against the dollar in the past few trading sessions amid increased market appetite for riskier currencies.

“Aside from the strong peso, the long end of the yield curve already rallied, so the short-end should be aligned with the long end,” the second trader added.

The government plans to raise P360 billion this quarter through domestic means. Some P240 billion will be borrowed through 12 weekly T-bill auctions during the three-month period, while P120-billion worth of T-bonds will also be issued through six fortnightly auctions. — Karl Angelo N. Vidal