T-bill rates inch up before BSP decision

The government made a full award of the Treasury bills (T-bills) it offered on Monday as it saw strong demand and even as rates mostly inched up as the market awaits the Bangko Sentral ng Pilipinas’ (BSP) policy decision this week.

The Bureau of the Treasury (BTr) raised P20 billion as planned from the T-bills it auctioned off on Monday as total bids reached PHP 52.535 billion, or more than twice the amount on offer. This was higher than the PHP 47.298 billion in tenders recorded at the Aug. 5 T-bill auction.

Broken down, the BTr borrowed P6.5 billion as programmed from the 91-day T-bills as tenders for the tenor reached PHP 15.29 billion. The three-month papers were quoted at an average rate of 5.9%, 7.2 basis points (bps) above the 5.828% recorded last week. Accepted rates ranged from 5.878% to 5.929%.

The government likewise made a full PHP 6.5-billion award of the 182-day securities as bids for the tenor reached P17.26 billion. The average rate for the six-month T-bill stood at 6.093%, up by 3.1 bps from the 6.062% fetched last week, with accepted rates at 6.074% to 6.1%.

Lastly, the Treasury raised the planned PHP 7 billion via the 364-day debt papers as demand totaled PHP 19.985 billion. The average rate of the one-year debt inched down by 1.2 bps to 6.062% from the 6.074% quoted for the tenor last week, with the BTr only accepting bids with this yield.

At the secondary market before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.8429%, 6.1056%, and 6.1977%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

The government made a full award of the T-bills as the offer was met with strong demand, with investors seeking to lock in returns from longer tenors in anticipation of the start of the BSP’s easing cycle, a trader said in a text message.

“Treasury bill average auction yields were again mostly slightly higher after the faster inflation rate in July and the faster-than-expected GDP (gross domestic product) growth rate that could reduce the possibility of a BSP policy rate cut as early as Aug. 15,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message on Monday.

Analysts are divided on the Monetary Board’s rate decision this week as faster inflation in July caused BSP Governor Eli M. Remolona, Jr. to take a less dovish policy stance.

A BusinessWorld poll showed that nine out of 16 analysts surveyed expect the central bank to deliver a 25-bp rate cut at Thursday’s review.

This would bring the target reverse repurchase rate to 6.25% and would be the first reduction in benchmark borrowing costs since November 2020, or during the height of the coronavirus pandemic.

The BSP has kept its policy rate at an over 17-year high of 6.5% since October 2023 following cumulative increases worth 450 bps.

The Monetary Board is now “a little bit less likely” to cut rates at this week’s policy meeting following the elevated July inflation print, Mr. Remolona said last week, adding that they remain open to off-cycle moves.

Headline inflation picked up to a nine-month high of 4.4% in July from 3.7% in June, the Philippine Statistics Authority (PSA) reported last week. This was slower than the 4.7% print in the same month a year ago and was within the BSP’s 4%-4.8% forecast for the month.

However, this was the fastest print in nine months or since the 4.9% clip in October 2023. It also marked the first time since November that inflation exceeded the central bank’s 2-4% annual target.

Meanwhile, Philippine GDP expanded by an annual 6.3% in the second quarter, the PSA reported separately last week. It was stronger than the revised 5.8% growth in the first quarter and 4.3% in the second quarter of 2023.

For the first semester, economic growth averaged 6%, hitting the low end of the government’s 6%-7% target.

On Tuesday, the BTr will offer PHP 30 billion in reissued seven-year Treasury bonds (T-bonds) with a remaining life of six years and 11 months.

It wants to raise PHP 220 billion from the domestic market this month, or PHP 80 billion through T-bills and PHP 140 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