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Rates of Treasury bills, bonds to climb on Fed hike expectations


RATES of government securities on offer this week could climb amid expectations of more US Federal Reserve hikes despite mixed economic data released last week.

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

On Tuesday, it will auction off P35 billion in reissued 25-year Treasury bonds (T-bonds) with a remaining life of 12 years and eight months.

A bond trader expects T-bill rates to remain steady and the T-bonds on offer to fetch yields at around 7.5% to 7.75% following the release of latest US jobs data, which could affect the Fed’s next policy move.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also said that both T-bill and T-bond rates may inch up following the US employment data.

“Recent hawkish Fed signals after mostly stronger US economic data recently that could still support further Fed rate hikes,” he said, adding that the Bangko Sentral ng Pilipinas (BSP) will likely continue to match the US central bank’s policy actions.

Mr. Ricafort expects T-bill yields to rise 10 basis points (bps) at most from the last successful award.

Meanwhile, he said the bonds on offer on Tuesday could fetch rates of 7.10% to 7.20%.

The US economy added jobs at a solid clip in December, pushing the unemployment rate back to a pre-pandemic low of 3.5% as the labor market remains tight, but Fed officials could draw some solace from a moderation in wage gains, Reuters reported.

Nonfarm payrolls increased by 223,000 jobs last month, the smallest gain in two years, after rising 256,000 in November. Job growth is more than double the 100,000 that economists say the Fed wants to see to be confident that inflation is cooling.

The economy added 4.5 million jobs in 2022, with employment gains averaging 375,000 per month.

However, average hourly earnings rose 4.6% in December from a year earlier, down from 4.8% in November.

Fed officials on Friday acknowledged cooling wage growth and other signs of a gradually slowing economy, with Atlanta President Raphael Bostic hinting at the chance of a quarter-percentage-point hike at the next policy meeting.

The Fed last year raised borrowing costs by 425 bps to a 4.25%-4.5% range.

Meanwhile, the BSP hiked benchmark interest rates by 350 bps in 2022.

At the secondary market on Friday, the 91- 182- and 364-day T-bills were quoted at 4.2673%, 4.874%, and 5.2682%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the 25-year bond fetched 7.2692% on Friday, while the 10-year paper, the tenor closest to the remaining life of the bonds to be offered on Tuesday, was quoted at 7.2119%.

Last week, the government raised P13.65 billion from the T-bills it auctioned off, short of the P15-billion program, even as bids reached P30.255 billion.

Broken down, the Treasury raised P5 billion as planned via the 91-day T-bills with tenders reaching P14.65 billion. The average rate of the three-month paper went up by 6.6 bps to 4.155% from the 4.089% quoted on Dec. 5.

The government also made a full P5-billion award of the 182-day securities as bids for the tenor hit P10.95 billion. The six-month paper was quoted at an average rate of 4.903%, down by 4.7 bps from the 4.95% fetched for the tenor on Dec. 5.

Meanwhile, the BTr raised just P3.65 billion from the 364-day debt papers as demand stood at only P4.655 billion, below the P5 billion on the auction block. The average rate of the one-year T-bill stood at 5.24%, 9 bps higher than the 5.15% fetched for the tenor for the last successful award on Nov. 28.

On the other hand, the 25-year bonds to be offered on Tuesday were last auctioned off on Oct. 25, where the BTr made a partial P26.139-billion award of its P35-billion offer. The tenor fetched an average rate of 7.887%, with the series’ coupon at 8%.

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 local and external sources to help fund a budget deficit capped at 6.1% of gross domestic product this year. — A.M.C. Sy

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