T-bill rates rise as bets of big Fed cut fade

THE GOVERNMENT made a full award of the Treasury bills (T-bills) it offered on Monday at higher rates due to dampened expectations of a larger cuts by the US Federal Reserve following strong jobs data out of the world’s largest economy.

The Bureau of the Treasury (BTr) raised P20 billion as planned from the T-bills it auctioned off on Monday as total bids reached P38.5 billion, nearly twice as much as the amount on offer but lower than the P76.445 billion in tenders seen the previous week.

Broken down, the Treasury borrowed P6.5 billion as programmed from the 91-day T-bills as tenders for the tenor reached P12.22 billion. The three-month paper was quoted at an average rate of 5.414%, 21.8 basis points (bps) higher than the 5.196% recorded last week, with bids ranging from 5.2% to 5.7%.

The government also made a full P6.5-billion award of the 183-day securities, with bids for the tenor reaching P12.42 billion. The average rate of the six-month T-bill stood at 5.474%, up by 46.9 bps from the 5.48% fetched last week and with accepted bid yields at 5.244% to 5.749%

Lastly, the Treasury raised P7 billion as planned via the 364-day debt papers as demand totaled P13.86 billion. The average rate of the one-year debt went up by 5.3 bps to 5.54% from the 5.487% quoted last week, with accepted rates ranging from 5.4% to 5.64%.

At the secondary market before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.1153%, 5.2922%, and 5.5086%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

T-bill yields climbed to track the increase in US Treasury rates as the strong nonfarm payrolls report had investors “trimming bets of sizeable Fed cuts,” a trader said in a text message.

“T-bill rates rose due to some risk-off sentiment from the geopolitical risks in the Middle East and higher US nonfarm payrolls last Friday, so buying pressure eased,” another trader said by phone.

On Friday, US Treasury yields rose to their highest level since early August as traders ditched bets that the Fed will cut rates by half a percentage point next month after the stronger-than-expected jobs report, Reuters reported.

Traders now see a roughly 97% probability the Fed will cut rates by only a quarter percentage point in November, up from roughly 68% on Thursday, CME Group’s FedWatch tool showed.

The yield on benchmark US 10-year notes rose 12.5 bps to 3.975% from 3.85% late on Thursday while the 30-year bond yield rose 7.9 bps to 4.259%.

The 2-year note yield, which typically moves in step with interest rate expectations, rose 21.8 bps to 3.9321% from 3.714% late on Thursday.

US job gains increased by the most in six months in September and the unemployment rate fell to 4.1%, pointing to a resilient economy that likely does not need the Fed to deliver large interest rate cuts for the rest of this year.

In addition to the bigger-than-expected increase in nonfarm payrolls reported by the Labor department on Friday, wages rose at a solid pace last month. The closely watched employment report also showed the economy added 72,000 more jobs in July and August than previously estimated.

The report followed on the heels of annual benchmark revisions to national accounts data last week that showed the economy is in much better shape than previously estimated, with upgrades to growth, income, savings and corporate profits.

This improved economic backdrop was acknowledged by Fed Chair Jerome H. Powell last week when he pushed back against traders’ expectations for another half-percentage-point rate cut in November, saying “this is not a (policy-setting) committee that feels like it is in a hurry to cut rates quickly.”

Nonfarm payrolls increased by 254,000 jobs last month, the most since March, the Labor department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast payrolls would rise by 140,000 positions after advancing by a previously reported 142,000 in August.

Estimates for September’s job gain ranged from 70,000 to 220,000. The three-month average of monthly job growth increased to 186,000 from 140,000 in August.

The flow of strong data, including consumer spending, since the US central bank kicked off its policy easing cycle with an unusually large 50-bp reduction last month, had some economists wondering if policy makers had panicked.

The Fed cut its policy rate by 50 bps last month to the 4.75%-5% range, its first rate reduction since 2020. It hiked rates by 525 bps in 2022 and 2023.

Details of the household survey from which the unemployment rate is derived were equally upbeat, though 121,000 more people were working multiple jobs. The drop in the unemployment rate from 4.2% in August reflected an increase of 430,000 jobs in household employment, which more than absorbed the 150,000 people who entered the labor force.

The jobless rate has jumped from 3.4% in April 2023, in part boosted by those aged 16 to 24 and a rise in temporary layoffs during the annual automobile plant shutdowns in July.

It has now declined for two straight months. The employment-to-population ratio, viewed as a measure of an economy’s ability to create employment, rose to 60.2% from 60% in August. Fewer people worked part-time for economic reasons.

Meanwhile, Hezbollah rockets hit Israel’s third-largest city of Haifa, police said early on Monday, and Israeli media reported 10 injured in the country’s north on the first anniversary of the Gaza war, which has spread in the Middle East.

Iran-backed Hezbollah, an ally of Hamas, the Palestinian militants group fighting Israel in Gaza, said it targeted a military base south of Haifa with a salvo of “Fadi 1” missiles.

On Monday, Israelis marked the first anniversary of the devastating Hamas attack that triggered a war which has sparked protest worldwide and risks igniting a far wider conflict in the Middle East.

Security forces were on high alert across Israel on Monday, the military and police said, anticipating possible Palestinian attacks planned for the anniversary of Oct. 7, 2023, when the worst bloodletting in the decades-old Israeli-Palestinian conflict began.

The BTr plans to borrow P145 billion from the domestic market this month, or P100 billion via T-bills and P45 billion through Treasury bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.48 trillion or 5.6% of economic output this year. — A.M.C. Sy with Reuters