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T-bills on offer may fetch lower rates on dovish Fed

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YIELDS ON the Treasury bills (T-bill) on offer today are expected to slide after the US central bank signalled a dovish stance on hiking its borrowing costs at its policy review last week.

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

Traders interviewed before the weekend said rates of the T-bills on offer today will likely move lower from the previous auction, with one saying yields could slide by 5-10 basis points (bp).

“The rates of the T-bills will slide…as the demand is still expected to be strong at around twice the offer size,” the trader said in a phone interview Friday.

Last week, the Treasury borrowed just P18.397 billion out of the P20 billion it wanted to raise at its T-bills auction, partially awarding the shortest tenor amid lukewarm demand as investors continued to park their funds in the longer-dated securities.

At that auction, the rate of the 90-day papers climbed 11.6 bps to 5.534%, while the 182- and 364-day IOUs fetched lower rates of 5.892% and 5.946%, respectively.

Based on the PHP Bloomberg Valuation Service Reference Rates, the three-month, six-month and one-year papers were quoted at 5.436%, 5.813% and 5.977%, respectively, on Friday.

The trader said yields on the T-bills will move lower as investors price in the results of the policy meeting of the US Federal Reserve last week.

As expected, the Fed kept interest rates at its two-day review last week, saying it will be “patient” in raising its borrowing costs this year amid “conflicting signals” on the US economic outlook.

“We continue to expect the American economy will grow at a solid pace in 2019, although likely slower than the very strong pace of 2018,” Fed Chair Jerome Powell said in a press conference following the two-day meeting.

Meanwhile, another trader said market participants will watch out for the domestic inflation data for January to be released on Tuesday.

A BusinessWorld poll of 12 analysts yielded a 4.5% median estimate for headline inflation, which, if fulfilled, will be slower than the 5.1% tallied in December.

The expected deceleration in inflation was mainly attributed to the sustained decline in food prices, which helped offset higher oil prices due to pickup in global crude prices and new tranche of the fuel excise tax implemented during the month.

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 Treasury bonds will also be issued through six fortnightly auctions.

The state wants to borrow P1.189 trillion in 2019 to fund its spending plans. Of the amount, 75% will be sourced domestically while the remainder will be from foreign creditors. — Karl Angelo N. Vidal