RATES of the Treasury bills (T-bills) and Treasury bonds (T-bonds) to be auctioned off this week could end mixed to track the swings seen in secondary market yields following Moody’s move to cut the United States’ credit rating.
The Bureau of the Treasury (BTr) will auction off P25 billion in T-bills on Monday, or P8 billion each in 91- and 182-day papers and P9 billion in 364-day papers.
On Tuesday, the government will offer P30 billion in reissued 20-year T-bonds with a remaining life of 13 years and eight months.
T-bill and T-bond rates could follow the mixed week-on-week movements at the secondary market after Moody’s downgraded the US’ credit rating, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
The rating downgrade put US Treasuries under pressure, which also affected the local bond market, the first bond trader said.
Secondary market yields last week were mostly mixed, with rates of short tenors mostly inching lower and those of longer tenors rising, following the movements of US Treasuries after Moody’s cut the triple-A US credit rating on May 16.
On Friday, rates of the 91- and 182-day T-bills went down by 5.75 basis points (bps) and 1.59 bps week on week to end at 5.4551% and 5.6098%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data as of May 23 published on the Philippine Dealing System’s website. Meanwhile, the 364-day paper rose by 4.02 bps to close at 5.7398%.
On the other hand, the 20-year bond jumped by 20.45 bps week on week to end at 6.4771%.
Benchmark 10-year US yields, which influence mortgage rates as well as borrowing costs for companies and consumers, rose to over 4.5% early on Monday last week but the sell-off then moderated, Reuters reported. On Tuesday, the bond market sell-off continued, with the 10-year yield last seen at 4.48%, slightly above where it closed on Monday.
Longer-dated 30-year yields rose more sharply, hitting a high of over 5% on Monday, the highest since November 2023, and flirting with that level again on Tuesday.
On Friday, the 30-year US bond yield, which on Thursday hit the highest since October 2023, fell in response to fresh tariff fears.
The yield was down 2.2 bps at 5.042%. The yield on benchmark US 10-year notes fell 3.6 bps to 4.517%.
The first bond trader said the ongoing volatility in global bond markets could cause the BTr’s offering of reissued 20-year T-bonds to be “met with caution, enough to force a rejection.”
The second bond trader likewise said the bond offering could be “poorly received.”
Both traders expect the reissued 20-year bonds to fetch yields of 6.50% to 6.70%.
Meanwhile, Mr. Ricafort added that T-bill yields could mostly ease to track secondary market rates following the latest rate cut signals from the Bangko Sentral ng Pilipinas (BSP) chief.
BSP Governor Eli M. Remolona, Jr. said on Friday that the Monetary Board could cut rates two more times this year, with the next reduction on the table as early as next month.
“Maybe two more cuts. Not necessarily consecutive. Still 25 basis points (bps) at a time, given what we know about what’s going on,” Mr. Remolona said. “The hard part is we don’t know. It’s new territory for most central banks. That’s the most uncomfortable part.”
He said easing inflation gives them “plenty of room” to cut, although they don’t want to cut “too much” as this could stoke prices anew.
The Monetary Board in April cut benchmark interest rates by 25 bps to bring the policy rate to 5.5%. It has now reduced borrowing costs by a cumulative 100 bps since beginning its easing cycle in August last year.
There are four remaining Monetary Board policy meetings this year scheduled for June, August, October and December.
Last week, the BTr raised P25 billion as planned from the T-bills it auctioned off as total bids reached P78.388 billion or more than thrice the amount on offer.
Broken down, the Treasury borrowed the programmed P8 billion via the 91-day T-bills on Monday as tenders for the tenor reached P24.1 billion. The three-month paper was quoted at an average rate of 5.515%, down by 3.1 bps from the previous auction. Tenders accepted by the BTr carried yields of 5.505% to 5.522%.
The government likewise made a full P8-billion award of the 182-day securities it auctioned off as bids for the paper amounted to P34.328 billion. The average rate of the six-month T-bill was at 5.612%, 3.8 bps lower than last week, with accepted rates ranging from 5.599% to 5.622%.
Lastly, the Treasury raised P9 billion as planned via the 364-day debt papers as demand for the tenor totaled P19.96 billion. The average rate of the one-year T-bill rose by 4.7 bps to 5.702%, with the bids awarded having yields of 5.65% to 5.712%.
Meanwhile, the 20-year T-bonds to be offered on Tuesday were last auctioned off on Aug. 20, 2024, where the BTr raised P25 billion as planned at an average rate of 6.103%, below the 6.75% coupon rate.
The Treasury is looking to raise P260 billion from the domestic market this month, or P100 billion via T-bills and P160 billion through T-bonds.
The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.54 trillion or 5.3% of gross domestic product this year. — A.M.C. Sy with Reuters
