T-bill rates rise across the board; investors temper dovish US Fed bets

As expected, yields on Treasury bills (T-bills) went up on Monday’s auction, tracking the uptick in US Treasury rates amid a robust US labor market report.

The Bureau of the Treasury (BTr) was able to borrow its target amount of P20 billion via T-bills as total orders booked for the debt paper amounted to P38.5 billion, exceeding the original size by nearly two times.

Broken down, the three-month T-bill fetched an average yield of 5.414 percent, up from the 5.196 percent recorded last week. Meanwhile, the rate for the 182-day paper increased to 5.474 percent, from 5.005 percent.

Likewise, the rate for the 364-day T-bill averaged 5.540, more expensive compared with last week’s 5.487 percent.

“The T-bill yields were higher by as much as 45 basis points (bps) for today’s auction, essentially taking out last week’s drop. Demand also softened with a bid to cover two times [the offer size] versus 3.7 times previously,” Dino Angelo Aquino, vice president and head of fixed income at Security Bank Corp., told Inquirer.

Softer demand

Aquino also highlighted that the significant increase in US Treasury yields had led to further upward pressure on short-term interest rates.

According to a Reuters report, US Treasury yields reached their highest levels since early August as traders abandoned expectations of a half-percentage-point rate cut by the US Federal Reserve (Fed) next month, following a stronger-than-anticipated jobs report.

The yield on benchmark US 10-year notes rose 12.5 bps to 3.975 percent, from 3.85 percent on Oct.5 while the 30-year bond yield went up by 7.9 bps to 4.259 percent.

Meanwhile, the yield on the two-year note, which usually aligns with interest rate expectations, increased by 21.8 bps to 3.9321 percent, up from 3.714 percent last week.

Sharing the same view, Lodevico Ulpo Jr., vice president and head of fixed income strategies at ATRAM Trust Corp., said that yields at this week’s T-bill auction rose due to weak demand and a sharp rise in US Treasury yields.

“Demand likely softened following strong US nonfarm payrolls data, which diminished the chances of a large Fed rate cut. Additionally, with the US set to release CPI data this week, investors may remain on the sidelines for clearer economic signals,” he added.

The US nonfarm payrolls saw an increase of 254,000 jobs last month, the highest since March, according to the Labor Department’s Bureau of Labor Statistics.

The BTr intends to borrow P145 billion from the domestic market this October, with P100 billion to be sourced from the sale of T-bills and P45 billion from Treasury bonds.