T-bills seen to fetch higher rates

March 12, 2018 - 12:00 AM
The Bureau of Treasury building in Manila, in 2014 file photo. BUSINESSWORLD

MANILA – Yields on Treasury bills (T-bills) on auction Monday (March 12) will likely rise amid continued market uncertainty over possible interest rate hikes at home and in the United States.

The Bureau of the Treasury (BTr) plans to raise as much as P20 billion from short-dated securities today.

Broken down, the government will auction off P9 billion in three-month debt papers, P6 billion in six-month T-bills, and P5 billion worth of one-year papers.

A trader said in an interview on Friday that investors will likely park their funds on the shorter end of the curve.

“For the [three-month] papers, I’m expecting [its yields] to settle at 2.9-2.95%, 20 basis points from the last successful auction, while yields of the six-month and one-year bills will likely land at [3.1% and 3.3%, respectively],” the trader said.

During the last successful T-bills auction on Feb. 12, the government only borrowed P14.17 billion out of the P20-billion program after total tenders reached P22.96 billion.

Yields of the 91-day, 182-day, and 364-day papers fetched 2.67%, 2.854% and 3.04%, respectively. However, the Treasury rejected all bids during the Feb. 26 auction as banks sought higher returns.

Asked why market players will seek higher yields, the trader interviewed on Friday said: “It’s still uncertainty with the trajectory of the yields.”

Chicago Federal Reserve (Fed) President Charles L. Evans earlier said he would prefer to “wait a little longer” than raising interest rates during this month’s meeting on the back of continued low inflation.

“My own preference would be to wait a little bit longer, let the March anomalous inflation rate from a year ago fall out,” Mr. Evans said in a CNBC interview, adding that the trajectory of the rates is more important than the number of rate increases this year.

Two weeks ago, Fed Chair Jerome H. Powell vowed to stick with the central bank’s plan to gradually hike interest rates, prompting investors to increase bets on four rate increases this year.

“We all know that interest rates of Federal Reserve is going to pick up this year, but there’s no certainty on the number of hikes,” the trader said, adding three rate hikes are expected from the Fed this year.

Peter Lundgreen, chief executive officer at Lundgreen’s Capital, also sees the Fed raising rates three times this year, adding the Philippines needs to hike its rates as soon as possible.

“It will be a minimum of three rate hikes from the US this year. So what happens is if the Philippine central bank is not following suit with the Fed, the Philippine peso will also drop further in value,” Mr. Lundgreen told BusinessWorld.

The Treasury said it plans to auction off P120 billion worth of Treasury bills and another P120 billion worth of Treasury bonds during the January to March period.

The total amount the government intends to borrow from the local market is higher than the P200 billion it offered in the last quarter of 2017.

The government borrows from local and foreign sources to fund its budget deficit, which for this year is capped at 3% of the country’s gross domestic product.

The government targets a P888.23 billion gross borrowing plan this year.