T-bill, bond rates to track secondary mart levels

RATES of government securities on offer this week could be broadly steady and track secondary market yields amid the release of US consumer inflation data and its expected effect on the US Federal Reserve’s policy decision later this month.

The Bureau of the Treasury (BTr) will auction off P15 billion in Treasury bills (T-bills) on Monday, made up of P5 billion each in 91-, 182-, and 364-day papers.

On Tuesday, it will offer P35 billion in reissued 20-year Treasury bonds (T-bonds) that have a remaining life of 19 years and 10 months.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the 20-year bond may fetch yields of 7% to 7.5% amid strong demand for the papers.

He added that risk appetite in the near term will be supported by US consumer inflation data released last week.

“This strengthens the view of slower Fed rate hikes starting with 25 basis points (bps) in the next Federal Open Market Committee meeting,” Mr. Asuncion said.

US consumer prices fell for the first time in more than two years in December, boosting hopes that the Fed could begin considering slower rate increases.

The consumer price index (CPI) dipped 0.1% last month, the first decline since May 2020. The CPI rose 0.1% in November.

In the 12 months through December, the CPI increased 6.5%, easing from the 7.1% in November.

The US central bank hiked borrowing costs by 425 bps in 2022, bringing its fed funds rate to 4.25-4.5%.

It will hold its first policy meeting for this year on Jan. 31 to Feb. 1.

Meanwhile, a bond trader said T-bill rates may remain steady amid “generally lower yields for government securities,” while the T-bond rates could reach levels near 7% on strong demand due to the lack of supply of the 20-year tenor in the market.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also said T-bill rates may rise while the T-bonds on offer on Tuesday may fetch lower yields, tracking their week-on-week movement in the secondary market.

“For the upcoming 20-year Treasury bond, the auction yield could range at 6.90%-7.10% levels,” Mr. Ricafort added.

At the secondary market on Friday, the 91- 182- and 364-day T-bills were quoted at 4.3887%, 5.0447%, and 5.413%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the 20-year bond fetched 7.0565% on Friday.

Last week, the government raised P14.75 billion from the T-bills it auctioned off, short of the P15-billion program, even as bids reached P27.995 billion.

Broken down, the Treasury raised P5 billion as planned via the 91-day T-bills with tenders reaching P11.875 billion. The average rate of the three-month paper went up by 7.7 bps to 4.232% from the 4.155% quoted previously.

The government also made a full P5-billion award of the 182-day securities as bids for the tenor hit P9.18 billion. The six-month paper was quoted at an average rate of 4.959%, up by 5.6 bps from the 5.24% seen the week prior.

Meanwhile, the BTr raised just P4.75 billion from the 364-day debt papers despite bids reaching P6.94 billion, above the P5 billion on the auction block. The average rate of the one-year T-bill stood at 5.393%, 15.3 bps higher than the 5.24% fetched for the tenor the previous week.

Meanwhile, the 20-year bonds to be offered on Tuesday were last auctioned off on Nov. 22, 2022, where the BTr made a partial P27.597-billion award of its P35-billion offer. The tenor fetched an average rate of 8.012%, with the series’ coupon at 8.125%.

The BTr wants to raise P200 billion from the domestic market this month, or P60 billion through T-bills and P140 billion via T-bonds.

The government borrows from domestic and external sources to finance its budget deficit, which is expected to reach P1.47 trillion this year or 6.1% of gross domestic product. — A.M.C. Sy