T-bill, T-bond yields seen to decline
Rates of government securities up for auction this week are expected to ease as the local market starts to price in the possible more rate cuts from the central bank.
The Bureau of the Treasury (BTr) will auction off P20 billion worth of Treasury bills (T-bills) on Monday, or P6.5 billion each of 91- and 182-day paper and P7 billion of 364-day debt paper.
On Tuesday, the government will offer P30 billion of reissued 7-year T-bonds with a remaining life of four years and eight months.
Dino Angelo Aquino, vice president and head of fixed income at Security Bank Corp., expects interest rates to decrease, given the expectation that the US Federal Reserve (Fed) may cut rates more than anticipated.
“Local market will start pricing in the eventuality that the Bangko Sentral ng Pilipinas (BSP) can reduce more than the 25 basis points (bps) that is priced in already,” Aquino said.
BSP Governor Eli Remolona Jr. said earlier that the market can expect a “calibrated” shift to a less restrictive monetary policy, and that a further 25-bps rate cut might be considered at either the Oct. 17 or Dec. 19 meeting of the Monetary Board.
“T-bills will likely remain range-bound with still-decent demand. The consumer price index printing at the low end of the range will likely support the demand on short-dated paper,” he added.
Consumer prices in August eased to 3.3 percent from 4.4 percent in the previous month and 5.3 percent a year ago, primarily driven by more gradual hikes in food and transport costs.
Meanwhile, Aquino placed the yield for the five-year T-bonds to fall within 6.1 to 6.2-percent range with a bias on the lower end, following the release of lower-than-expected US employment data.
Jobs data
Nonfarm payrolls—or those employed in the private sector, excluding farm workers and private household employees—increased by 142,000 jobs last month after a downwardly revised 89,000 rise in July but still lower than 165,000 forecast.
Despite the decrease in the 4.2 percent unemployment rate, an analyst indicated that the labor market was still stable enough not to justify a 25-bps interest rate cut from the Fed this month.
“The recent developments regarding the softening US labor market would likely fuel demand for local bonds,” Aquino said.
A softer economic data would increase the likelihood of Fed rate cuts that could be matched by the BSP, resulting in lower bond yields and higher bond prices, which are in turn supported by stable inflation within the central bank’s 2 to 4 percent target range for the year.
