BTr hikes T-bill award on strong demand

The government upsized the volume of Treasury bills (T-bills) it awarded on Tuesday amid strong demand and despite mostly higher yields as investors sought to lock in better returns on expectations of rate cuts from the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) in the coming months.

The Bureau of the Treasury (BTr) raised PHP 22.6 billion from the T-bills it auctioned off on Tuesday, higher than the planned PHP 20 billion, as total bids reached PHP 53.4 billion or more than twice the amount on offer. However, the demand seen on Tuesday was lower than the PHP 61.297 billion in tenders recorded at the Aug. 19 T-bill auction.

“The auction was 2.7 times oversubscribed with total bids reaching PHP 53.4 billion, prompting the Committee to increase the accepted non-competitive bids for the 182-day securities,” the Treasury said in a statement.

Broken down, the BTr borrowed PHP 6.5 billion as programmed from the 91-day T-bills as tenders for the tenor reached PHP 14.94 billion. The three-month papers were quoted at an average rate of 5.966%, 2.6 basis points (bps) higher than the 5.94% recorded last week. Accepted rates ranged from 5.934% to 5.999%.

Meanwhile, the government hiked its award of 182-day securities to PHP 9.1 billion versus the original PHP 6.5-billion plan as bids for the tenor reached PHP 19.43 billion. The average rate of the six-month T-bill stood at 5.996%, up by 0.7 bp from the 5.989% fetched last week, with accepted rates at 5.96% to 6.025%.

Lastly, the Treasury raised PHP 7 billion as planned via the 364-day debt papers as demand for the tenor totaled PHP 19.01 billion. The average rate of the one-year debt inched down by 0.01 bp to 6.022% from the 6.023% quoted last week, with accepted rates at 5.985% to 6.06%.

At the secondary market before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.9247%, 6.0559%, and 6.1038%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

“The BTr continued to take advantage of strong demand given the increase in non-competitive awards for the 182-day bills,” a trader said in a text message.

“Treasury bill average auction yields mostly corrected slightly higher, as some investors tend to lock in interest rates for longer-term tenors amid the widely expected Fed and BSP rate cuts for the coming months, as affirmed recently by Fed Chair Jerome H. Powell and most Fed officials during the Jackson Hole Economic Symposium over the weekend,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Mr. Powell on Friday endorsed an imminent start to interest rate cuts, saying further cooling in the job market would be unwelcome and expressing confidence that inflation is within reach of the US central bank’s 2% target, Reuters reported.

“The time has come for policy to adjust,” Mr. Powell said in a highly anticipated speech to the Kansas City Fed’s annual economic conference in Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

Analysts and financial markets had already widely expected the Fed to deliver its first rate cut at its Sept. 17-18 policy meeting, a view that was cemented after a readout of the central bank’s July meeting said a “vast majority” of policy makers agreed the policy easing likely would begin next month.

With its policy rate currently in the 5.25%-5.5% range, the Fed has “ample room” to reduce borrowing costs to cushion the economy, Mr. Powell said.

Meanwhile, the BSP this month cut benchmark interest rates for the first time in almost four years to mark the start of a “calibrated” easing cycle amid an improving inflation and economic outlook, with its governor signaling at least one more reduction before the end of the year.

The Monetary Board reduced its target reverse repurchase rate by 25 bps to 6.25%, as expected by nine out of 16 analysts in a BusinessWorld poll. Prior to the cut, the BSP kept its policy rate at an over 17-year high of 6.5% for six straight meetings following cumulative hikes worth 450 bps between May 2022 and October 2023 to rein in elevated inflation.

BSP Governor Eli M. Remolona, Jr. said they could cut rates by another 25 bps within the year. The Monetary Board’s remaining policy-setting meetings this year are on Oct. 17 and Dec. 19.

Analysts expect the BSP’s easing cycle to continue until next year, with at least 100 bps in rate cuts seen in 2025.

Tuesday’s T-bill auction was the last for the month. The Treasury raised PHP 85.2 billion via the short-term papers in August, higher than the P80-billion program, as it upsized its awards at two out of four auctions.

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

The Treasury 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. — Aaron Michael C. Sy with Reuters