Gov’t fully awards T-bills as rates decline

The government made a full award of the Treasury bills (T-bills) it offered on Monday as yields dropped across all tenors on strong demand and expectations of rate cuts by the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve later this year.

The Bureau of the Treasury (BTr) raised PHP 15 billion as planned from the T-bills it offered on Monday as total bids reached PHP 59.345 billion or nearly four times the amount on the auction block.

Broken down, the BTr borrowed PHP 5 billion as programmed from the 91-day T-bills as tenders for the tenor reached PHP 19.105 billion. The three-month paper was quoted at an average rate of 5.712%, 1.5 basis points (bps) lower than the 5.727% seen last week. Accepted rates ranged from 5.67% to 5.725%.

The government likewise made a full PHP 5-billion award of the 182-day securities, with bids reaching PHP 19.36 billion. The average rate for the six-month T-bill stood at 5.864%, down by 2.9 bps from the 5.893% fetched last week, with accepted rates at 5.843% to 5.875%.

Lastly, the Treasury also raised the planned PHP 5 billion via the 364-day debt papers as demand for the tenor totaled PHP 20.88 billion. The average rate of the one-year debt dropped by 3 bps to 6.007% from the 6.037% quoted last week. Accepted yields were from 6% to 6.013%.

At the secondary market before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.7991%, 5.9006%, and 6.0242%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

The BTr made a full award of its offer as the average T-bill yields were “all lower than previous auction and secondary market benchmark rates,” it said in a statement on Monday.

T-bill rates eased as market expectations of a Fed rate cut were boosted by better inflation data recently, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Data last week showed US consumer prices for April rose less than expected, leading to markets pricing in 50 bps of easing, or at least two rate cuts this year, but various Fed officials have sounded words of caution about when rates may fall, Reuters reported.

That has prompted traders to trim the amount of easing expected this year to about 46 bps, with only a rate cut in November fully priced in.

The spotlight will now be on the upcoming personal consumption expenditures price index report — the Fed’s preferred gauge of inflation — due on May 31.

Markets will also focus on minutes of the Fed’s last meeting due on Wednesday. Flash purchasing manager indices for euro zone, Germany, the UK and the US are also due this week, along with a roster full of Fed speakers.

While the Fed will have been heartened by the April CPI (consumer price index) report, the US central bank will require a little more convincing that inflation is headed back to its target of 2% sustainably before it will consider easing policy, ANZ analysts said.

The Fed this month kept its target rate at the 5.25%-5.5% range for a sixth straight meeting after hiking benchmark rates by 525 bps from March 2022 to July 2023.

“The awarded T-bill rates were lower after BSP Governor Eli M. Remolona, Jr. hinted at a potentially earlier BSP policy rate cut in August,” a trader said in an e-mail.

The Monetary Board on Thursday kept benchmark rates steady for a fifth straight meeting but signaled a “less hawkish” tone amid slowing inflation.

The BSP left its target reverse repurchase rate unchanged at a 17-year high of 6.5%, as expected by 17 out of 19 analysts in a BusinessWorld poll. Interest rates on the overnight deposit and lending facilities were likewise kept at 6% and 7%, respectively.

Mr. Remolona said after the meeting that they are now “somewhat less hawkish than before” and could begin easing their policy stance by the third or fourth quarter of this year, adding they expect one or two 25-bp rate cuts within the second semester.

He said BSP may start easing ahead of the Fed, which he expects to begin cutting rates by September.

The Monetary Board’s only meeting for the third quarter is scheduled for Aug. 15. Meanwhile, in the fourth quarter, it will hold reviews on Oct. 17 and Dec. 19.

The BSP raised borrowing costs by a cumulative 450 bps from May 2022 to October 2023.

On Tuesday, the BTr will offer PHP 30 billion in fresh 20-year Treasury bonds (T-bonds).

The Treasury wants to raise PHP 210 billion from the domestic market this month, or PHP 60 billion from T-bills and PHP 150 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at PHP 1.48 trillion or 5.6% of gross domestic product for this year. — A.M.C. Sy with Reuters