T-bill rates to rise ahead of Fed

TREASURY BILLS (T-bills) on offer today will likely fetch mixed yields amid strong investor appetite for shorter-dated papers ahead of the anticipated interest rate hike of the US Federal Reserve next week.

The government plans to raise as much as P15 billion in today’s auction of T- bills: P6 billion in 91-day debt papers, P5 billion in 182-day notes and P4 billion in 364-day papers.

A bond trader said in a phone interview on Friday that the offer of the shorter-termed securities will likely be met with flat to slightly higher bids from investors, with rates seen to go up by 15 basis points ( bps) across the board as market players are now on the lookout for the expected Fed rate hike.

“I think demand for the T-bills are still ok. But yields can be unchanged to 15 bps higher ahead of FOMC (Federal Open Market Committee) decision the following week,” the trader said in a text message.

Global markets have already priced in that the US central bank will tighten policy rates anew during their June 13-14 FOMC meeting, which, if realized, will be the second interest rate increase for 2017, two months after regulators decided to lift borrowing costs by 25 bps within 0.75% to 1% in their March policy meeting.

The trader also noted that data on US non-farm payrolls “will really set the tone for [this] week.”

Latest data from the US Labor Department bared US job growth in May slowed but gained 138,000 after the manufacturing, government and retail sectors lost jobs last month.

On the other hand, another trader said by phone on Friday that yields are expected to slide across the board compared to the previous auction, with demand more concentrated on the threeand six-month T-bills.

“Yields should decline with demand, but the three- and sixmonth T-bills will see more demand rather than the one-year because appetite is on the shortend of the curve especially now with the expected Fed rate hike happening next week,” the trader said.

The government made a full award of the T- bills auctioned off last May 22 after demand for the papers surged on the back of strong investor appetite and amid excess liquidity.

The Bureau of the Treasury raised P15 billion as planned at that auction after total tenders reached P55.12 billion, nearly four times the volume of debt papers placed on the auction block.

The 91- day T- bills received a total of P23.946 billion in tenders, almost four times the programmed P6 billion, with the government fully awarding the papers quoted at an average rate of 2.148%.

Meanwhile, the government also raised P5 billion as planned from the 182- day securities, which fetched a 2.494% yield. Offers came in at P13.946 billion, nearly three times the P5 billion offered.

Lastly, the 364- day T- bills were also fully awarded at P4 billion after offers reached P17.225 billion, more than four times the offer. It fetched a rate of 2.835%.

At the secondary market on Friday, the three- month, sixmonth, and one- year papers fetched 2.4411%, 2.2052%, and 2.8402%, respectively.

Asked what other risks or concerns would investors consider prior to placing their bids on the T-bills, the trader said, “Everyone is just waiting for the non-farm payrolls data as well as on how abrupt will the next Fed rate hike be after the June rate hike is already priced in.”

For his part, BDO Unibank, Inc.’s Chief Market Strategist Jonathan L. Ravelas said in his weekly outlook: “The government is expected to report the May inflation [this] week...Continue to see rates to move sideways to up in the week ahead.”

The government plans to borrow up to P180 billion locally this quarter — P90 billion each of Treasury bills and Treasury bonds.