Gov’t fully awards T-bills amid robust demand

The government made a full award of the Treasury bills (T-bills) it offered on Monday even as rates continued to inch up as it saw strong demand from the market, with investors looking to lock in high yields before the Bangko Sentral ng Pilipinas (BSP) and US Federal Reserve start their respective monetary easing cycles.

The Bureau of the Treasury (BTr) raised PHP 20 billion as planned from the T-bills it auctioned off on Monday as total bids reached PHP 47.372 billion, or more than twice the amount on offer.

Broken down, the BTr borrowed PHP 6.5 billion as programmed from the 91-day T-bills as tenders for the tenor reached PHP 14.86 billion. The three-month papers were quoted at an average rate of 5.743%, 2.6 basis points (bps) above the 5.717% seen last week. Accepted rates ranged from 5.724% to 5.755%.

The government likewise made a full P6.5-billion award of the 182-day securities as bids for the tenor reached P15.01 billion. The average rate for the six-month T-bill stood at 5.991%, up by 1.3 bps from the 5.978% fetched last week, with accepted rates at 5.98% to 5.998%.

Lastly, the Treasury raised the planned PHP 7 billion via the 364-day debt papers as demand totaled PHP 17.502 billion. The average rate of the one-year debt inched up by 0.9 bp to 6.081% from the 6.072% quoted for the tenor last week. Accepted yields were from 6.05% to 6.095%.

At the secondary market before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.7355%, 6.0223%, and 6.1053%, respectively, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the Treasury.

T-bill yields rose in line with market expectations as investors continued to price in potential rate cuts from the BSP, a trader said in a phone interview.

“Treasury bill average auction yields were again slightly higher week on week, similar to the weekly rise in the comparable PHP BVAL yields,… as investors lock in longer-term tenors ahead of a possible 25-bp policy rate cut as early as August and another 25-bp cut by the fourth quarter, as reiterated by local monetary authorities, and also amid more dovish signals by some Fed officials recently,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Eli M. Remolona, Jr. last month said the central bank may deliver its first rate cut in over three years at the Monetary Board’s Aug. 15 review — the only policy meeting scheduled this quarter — as they expect inflation to continue easing this semester.

The Monetary Board could slash borrowing costs by 25 bps this quarter and by another 25 bps in the fourth quarter, he added.

The BSP last month kept its policy rate at a 17-year high of 6.5% for a sixth straight meeting after raising interest rates by 450 bps from May 2022 to October 2023 to help tame red-hot inflation.

Mr. Remolona also said the better-than-expected June inflation print gives policymakers “a bit more scope for easing” in their August meeting.

Headline inflation eased to 3.7% in June from 3.9% in May. This was within the BSP’s 3.4-4.2% forecast for the month, and also marked the seventh straight month that inflation settled within the central bank’s 2-4% annual target.

For the first six months, the consumer price index averaged 3.5%, slightly faster than the BSP’s 3.3% full-year forecast.

Meanwhile, top Federal Reserve officials last week said the US central bank is “closer” to cutting interest rates given inflation’s improved trajectory and a labor market in better balance, remarks that set the stage for a first reduction in borrowing costs in September, Reuters reported.

Fed Governor Christopher Waller and New York Fed President John Williams both noted the shortening horizon toward looser monetary policy, with Mr. Waller highlighting it in a speech at the Kansas City Fed and Mr. Williams voicing it in a Wall Street Journal interview.

Separately, Richmond Fed President Thomas Barkin said he is “very encouraged” that declines in inflation had begun to broaden. “I’d like to see that continue,” he told a business group in Maryland.

The remarks are the latest in a rush of commentary from top US central bank officials — including Fed Chair Jerome H. Powell — to note their increased confidence that the disinflationary trend that began last year is continuing, despite a short-lived bump in inflation earlier this year.

More Fed policymakers have suggested they are getting increasingly comfortable that the pace of price increases is more firmly on track back down to 2%, after higher-than-expected readings earlier in the year.

Mr. Powell also said that inflation readings over the second quarter of this year “add somewhat to confidence” on its downward path, suggesting a start of an easing cycle may not be far off.

On Tuesday, the BTr will offer PHP 25 billion in reissued 20-year Treasury bonds (T-bonds) with a remaining life of 19 years and 10 months.

The Treasury wants to raise P215 billion from the domestic market this month, or PHP 100 billion through T-bills and PHP 115 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. — AMCS with Reuters