Treasury bills likely to fetch flat to higher rates after FOMC hike
TREASURY BILLS (T-bills) on offer today will likely fetch flat to slightly higher yields as demand for shorter-termed papers remains present amid expectations of a continued rise in global interest rates after the US Federal Reserve’s monetary tightening last 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 unchanged to higher bids across the board from investors on the back of strong appetite for the papers.
“Looks like rates will be steady to higher to reflect the Fed rate hike and as for demand, maybe bids will be generally higher,” the trader said in a text message.
Aligned with market expectations, the Fed lifted borrowing costs by a quarter of a percentage point within 1% to 1.25% at the close of its policy review last week. This is the second time the US central bank hiked rates this year since it increased rates for the first time in 2017 during its March Federal Open Market Committee (FOMC) meeting.
With rates request expected to be higher, the trader said, “Not sure if Bureau of Treasury is keen to accept those.”
In contrast, another trader said by phone on Friday they expect bids to move lower to flat for the 91- and 182- day securities while for the one-year T-bills, rates could be flat. “Expectation is yields will be 10 basis points ( bps) lower for the three- and sixmonth papers compared to the last auction. But for the one-year, it could be met with flat rates,” the trader said.
The Bureau of the Treasury raised P15 billion as planned during its T-bills auction on June 5 after total tenders reached P51.8 billion, more than three times nearly the volume of debt papers placed on the auction block.
The 91- day T- bills received a total of P25.08 billion in tenders, more than four times the programmed P6 billion, with the government fully awarding the papers quoted at an average rate of 2.103%.
Meanwhile, the government also raised P5 billion as planned from the 182- day securities, which fetched a 2.456% yield. Offers came in at P14.677 billion, nearly three times the P5 billion offered. Lastly, the 364-day T- bills were also fully awarded at P4 billion after offers reached P12.069 billion, more than three times the offer. It fetched a rate of 2.456%.
At the secondary market on Friday, the three- month, sixmonth, and one- year papers fetched 2.6804%, 2.3247%, and 2.8074%, respectively.
Asked what other risks or concerns would investors consider prior to placing their bids, the trader said, “Markets are expecting higher yields in the succeeding days to come after the Fed’s interest rate hike, so investors don’t want to lock in their cash at longer-dated securities.”
The trader also noted that the FOMC’s plan to unwind its balance sheets could mean a rise in global yields, which in turn, will stoke investors appetite for shorter-dated debt as their money will not be locked in for too long in these papers.
“The three- and six-month papers may be oversubscribed by as much as to times rather than the one-year still because it’s more of the effect of the Fed’s unwinding of their balance sheet,” the trader said.
After its two-day June FOMC meeting, Fed policy makers also mentioned its plan to trim its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities, as it expects to begin the normalization of its balance sheet within the year.
Reuters reported the plan would include the halt of reinvestments of larger amounts of maturing securities.
For his part, BDO Unibank, Inc.’s Chief Market Strategist Jonathan L. Ravelas said: “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 in Tbills and Treasury bonds.