August 28, 2022

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Treasury bill rates may climb further on Fed bets

RATES of Treasury bills (T-bills) could move sideways with an upward bias this week on hawkish signals from the US Federal Reserve chief and as the government concludes its offer of retail bonds.

The Bureau of the Treasury (BTr) will offer P15 billion in T-bills on Tuesday, or P5 billion each in 91-, 182-, and 364-day securities. This will be its last T-bill auction for the month and was moved from the usual Monday schedule due to a holiday on Aug. 19 for National Heroes Day.

There was no announcement of a Treasury bond (T-bond) auction for this week on the BTr’s website amid the government’s ongoing offer of 5.5-year retail Treasury bonds (RTB). The Treasury has yet to release its September borrowing schedule.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the rates of the T-bills on offer this week will likely be slightly higher amid expectations of tepid demand as the ongoing RTB offering continues to siphon off liquidity from the market.

Mr. Ricafort said T-bill rates will continue to track secondary market yields.

Meanwhile, traders said T-bill yields could be mixed with an upward bias.

The first trader sees T-bill rates rising by 5-10 basis points (bps) as another 75-bp hike from the Fed is “not completely off the table.”

“The BTr can partially award if they think that the bids are too high,” the first trader said.

“T-bills will likely move mixed, with the rate of the 91-day T-bill moving sideways to 5 bps higher, while the 182- and 364-day T-bills will move 10-20 basis points higher. The market is seen busy book-building for the ongoing RTB offering,” the second trader said.

At the secondary market on Friday, the 91- 182- and 364-day T-bills were quoted at 2.1447%, 3.2516%, and 3.8085%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

Fed Chair Jerome H. Powell warned in his speech at their annual economic symposium in Jackson Hole, Wyoming on Friday that the United States will see slow economic growth and an increase in unemployment as the central bank continues to raise rates to fight rising inflation.

Mr. Powell said the Fed will raise rates as high as needed and would keep them there “for some time” to bring down inflation.

The Fed next meets to discuss policy on Sept. 20-21. It has raised rates by 225 bps so far since March, including back-to-back 75-bp hikes in June and July.

Meanwhile, the government last week raised an initial P162.72 billion from the price-setting auction for its offer of 5.5-year retail bonds as tenders reached P225.32 billion, or more than seven times the P30-billion plan.

The retail bonds fetched a coupon rate of 5.75%, higher than the 4.875% set for the five-year RTBs offered in March.

The offer period for the peso-denominated debt maturing in 2028 is from Aug. 23 to Sept. 2, while settlement is on Sept. 7.

Last week, the government partially awarded its offer of T-bills, raising P12.02 billion against the P15-billion program despite bids reaching P30.76 billion.

Following the BTr’s cancellation of its scheduled Aug. 23 auction of P35 billion in 5.5-year bonds to make way for the retail bond offer, its T-bill and T-bond borrowing program for the month is now at P180 billion, or P75 billion from T-bills and P105 billion from T-bonds.

The government borrows from local and external sources to help fund a budget deficit capped at 7.6% of gross domestic product this year. — Diego Gabriel C. Robles