RATES of the Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week are expected to go down after the US Federal Reserve chief signaled that their monetary easing cycle could start as early as next month.
The Bureau of the Treasury (BTr) will auction off P20 billion in T-bills on Tuesday, or P6.5 billion in 91- and 182-day papers and P7 billion in 364-day debt.
On Wednesday, the government will offer P25 billion in reissued 20-year T-bonds with a remaining life of 19 years and nine months.
This week’s T-bill and T-bond auctions were moved due to a holiday on Aug. 26 (Monday) for National Heroes’ Day.
Yields on the T-bills and T-bonds on offer this week could drop to track the week-on-week declines seen in secondary market rates last week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
On Friday, the 91-, 182-, and 364-day T-bills saw their yields go down by 2.56 basis points (bps), 5.93 bps, and 4.51 bps week on week to end at 5.9247%, 6.0559%, and 6.1038%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data as of Aug. 22 published on the Philippine Dealing System’s website. The 20-year bond also dropped by 8.83 bps week on week to fetch 6.1780%.
Philippine financial markets were closed on Aug. 23 for a special non-working holiday in observance of Ninoy Aquino Day.
Secondary market yields were lower last week on expectations of rate cuts from both the Bangko Sentral ng Pilipinas (BSP) and the Fed, Mr. Ricafort said.
Rates went down before Fed Chair Jerome H. Powell’s speech at Jackson Hole symposium on Friday, where he was expected to adopt a dovish stance, a trader said via e-mail.
The trader added that the 20-year bonds to be auctioned off on Wednesday could fetch rates within the 6.20%-6.25% range as “strong demand might spark another rally as the said bond is currently trading on thin volume.”
The BSP on Aug. 15 reduced its target reverse repurchase rate by 25 bps to 6.25%, in line with the expectations of nine out of 16 analysts in a BusinessWorld poll. Prior to the cut, the Monetary Board kept the policy rate at an over 17-year high of 6.5% for six straight meetings following cumulative hikes worth 450 bps between May 2022 and October 2023 to combat elevated inflation.
BSP Governor Eli M. Remolona, Jr. said they could cut rates by another 25 bps within the year. The Monetary Board’s remaining policy-setting meetings this year are on Oct. 17 and Dec. 19.
Meanwhile, Fed Chair Jerome H. Powell on Friday endorsed an imminent start to interest rate cuts, saying further cooling in the job market would be unwelcome and expressing confidence that inflation is within reach of the US central bank’s 2% target, Reuters reported.
“The time has come for policy to adjust,” Mr. Powell said in a highly anticipated speech to the Kansas City Fed’s annual economic conference in Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
Analysts and financial markets had already widely expected the Fed to deliver its first rate cut at its Sept. 17-18 policy meeting, a view that was cemented after a readout of the central bank’s July meeting said a “vast majority” of policy makers agreed the policy easing likely would begin next month.
Most analysts have forecast the Fed will kick off its policy easing with a quarter-percentage-point rate reduction, the central bank’s usual increment.
Mr. Powell’s new emphasis on protecting the job market raises the chance of a bigger cut, especially if the US government’s jobs report for August, due to be released on Sept. 6, shows further deterioration in what many policy makers have called a still-healthy job market.
With its policy rate currently in the 5.25%-5.5% range, the Fed has “ample room” to reduce borrowing costs to cushion the economy, Mr. Powell said.
Last week, the raised P22.6 billion from the T-bills it auctioned off, higher than the planned P20 billion, as total tenders reached P61.297 billion or more than thrice the amount on offer. This was also higher than the P52.535 billion in bids seen during the Aug. 12 T-bill auction.
Broken down, the BTr borrowed P6.5 billion as programmed from the 91-day T-bills as tenders for the tenor reached P15.003 billion. The three-month papers were quoted at an average rate of 5.94%, rising by 4 bps from the prior week. Accepted rates ranged from 5.875% to 5.975%.
Meanwhile, the government upsized the award for the 182-day securities to P9.1 billion versus the P6.5-billion plan as bids reached P21.874 billion. The average rate for the six-month T-bill stood at 5.989%, down by 10.4 bps week on week, with accepted rates at 5.95% to 6.035%.
Lastly, the Treasury raised P7 billion as planned via the 364-day debt papers as demand for the tenor totaled P24.42 billion. The average rate of the one-year debt inched down by 3.9 bps to 6.023%, with accepted rates at 6% to 6.04%.
Meanwhile, the reissued 20-year bonds on offer on Wednesday were last auctioned off on June 26, where the BTr raised P30 billion as planned via the papers at an average rate of 6.86%, lower than the 6.875% coupon for the issue.
The Treasury plans to raise P220 billion from the domestic market this month, or P80 billion through T-bills and P140 billion via T-bonds. This week’s auctions are the last two for August.
The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.48 trillion or 5.6% of gross domestic product for this year. — BMDC with Reuters