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Treasury bill rates likely to drop on weaker peso, recession fears

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TREASURY BILLS (T-bill) on offer today are seen to fetch lower rates on the back of the weakening peso and amid fears of a global recession.

The Bureau of the Treasury (BTr) is offering P15 billion worth of Treasury bills (T-bill) on Monday, broken down into P4 billion, P5 billion, P6 billion for the three- and six-month and one-year debt papers, respectively.

Bond traders see rates on the T-bills declining further following the decline in US Treasury yields last week.

“We’re expecting around 10 to 15 basis points (bp) lower compared to the previous auction. Since the secondary market is already trading at that level. What will be in consideration is the recent rally in the US Treasuries and also the weakening of the peso,” a bond trader said in a phone interview on Friday.

Amalgamated Investment Bancorporation (AIB) peso fixed-income trader Rocky A. Bautista shared the same sentiment, saying rates of the short-term debt papers may drop 10-15 bps.

“Outside factors that may support the downward movement of local interest rates in general is the perception that the US may be entering a recession,”

The Treasury made a full award of the T-bills it auctioned off last Aug. 5, raising P15 billion as planned with the offer almost six times oversubscribed as total tenders reached P87.1 billion.

Broken down, the government raised P4 billion as planned via the 91-day T-bill, with the tenor’s average rate dropping 37.1 bps to 3.398%.

The Treasury also made full award of the 182-day papers, accepting P5 billion as programmed as the average yield declined 42.3 bps to 3.677%.

For the 364-day T-bills, the Treasury fully awarded the programmed P6 billion as the tenor’s average rate declined 62.1 bps to 3.898%.

At the secondary market last Friday, the three-month, six-month and one-year T-bills were quoted at 3.376%, 3.512% and 3.713%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates.

The US Treasury bond yield curve inverted on Wednesday for the first time since 2007, in a sign of investor concern that the world’s biggest economy could be heading for recession.

The inversion — a situation where shorter-dated borrowing costs are higher than longer ones — saw US two-year note yields rise above the 10-year bond yield.

Such an inversion, considered a classic recession signal, occurred last in June 2007 when the US sub-prime mortgage crisis was gathering pace. The US curve has inverted before every recession in the past 50 years, offering a false signal just once in that time.

Meanwhile, the peso weakened along with most Asian currencies last week due to recession fears. On a week-on-week basis, the peso weakened to P52.44 from its P51.88-per-dollar close last Aug. 9.

A second trader said yields on the 91-day T-bills may move sideways, while the 182-day and 364-day tenors may see their rates decline 10-15 bps, a second trader said.

Treasury bills worth P17.5 billion maturing on Aug. 20 will also contribute to demand, the second trader added.

The government is set to borrow P230 billion from the domestic market this quarter through T-bills and Treasury bonds.

It is looking to raise P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product. — B.M. Laforga with Reuters





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