Gov’t fully awards T-bills at higher rates

The government made a full award of the Treasury bills (T-bills) it offered on Monday at higher rates, even as investors are pricing in that the Bangko Sentral ng Pilipinas (BSP) has finished its tightening cycle and is ready to cut borrowing costs this year.

The Bureau of the Treasury (BTr) raised PHP 15 billion as planned via its offering of T-bills on Monday as total bids reached PHP 43.188 billion, or nearly three times the amount on the auction block.

Broken down, the Treasury made a full PHP 5-billion award of the 91-day T-bills as tenders for the tenor reached PHP 13.752 billion. The three-month paper was quoted at an average rate of 5.226%, 12.4 basis points (bps) higher than the 5.102% seen for the PHP 7-billion award last week. Accepted rates ranged from 5.193% to 5.25%.

The government also raised PHP 5 billion as planned from the 182-day securities as bids for the tenor reached PHP 13.06 billion. The average rate for the six-month T-bill was at 5.685%, up by 10.3 bps from 5.582% seen for the PHP 7 billion raised from the tenor last week, with accepted rates at 5.668% to 5.7%.

Lastly, the BTr borrowed the programmed PHP 5 billion via the 364-day debt paper as demand for the tenor stood at PHp 16.376 billion. The average rate of the one-year T-bill went up by 2.6 bps to 5.999% from the 5.973% quoted last week. Accepted yields were from 5.985% to 6%.

At the secondary market on Monday, the 91-, 182-, and 364-day T-bills were quoted at 5.337%, 5.5956%, and 5.9734%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

The government made a full award of its T-bill offer amid strong market demand for the securities, a trader said in a Viber message.

“We continue to see good demand as bid-to-cover [ratio] remains above two times… Looks like the market is quite convinced that the period of policy tightening may end this year,” the trader said.

BSP Governor Eli M. Remolona, Jr. earlier said the central bank will likely keep rates higher for longer and would only consider cutting borrowing costs once inflation settles firmly within the 2-4% target.

Headline inflation slowed to 3.9% in December from 4.1% in November and 8.1% a year ago.

However, the 2023 inflation average stood at a 14-year high of 6%. This was above the 5.8% in 2022 and marked the second straight year that average inflation breached the BSP’s 2-4% target.

Meanwhile, Monetary Board member and former Finance chief Benjamin E. Diokno last week said the central bank may cut borrowing costs by as much as 100 bps later this year to keep a healthy rate differential with the US Federal Reserve and amid expectations of easing domestic inflation.

The BSP raised borrowing costs by a cumulative 450 bps from May 2022 to October 2023 to help bring down elevated inflation, bringing the policy rate to a 16-year high of 6.5%.

The Monetary Board will hold its first policy meeting for this year on Feb. 15.

T-bill rates rose on Monday amid a healthy correction after yields went down significantly late last year, tracking secondary market movements, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

“The core US consumer price index and producer price index data eased further. That could still support or justify possible Fed rate cuts in the latter part of 2024,” Mr. Ricafort added, noting the US central bank’s policy easing could be matched locally.

Financial markets still see more than a 60% chance of a rate cut at the Fed’s March 19-20 policy meeting, according to CME Group’s FedWatch Tool, Reuters reported.

The Fed has hiked its policy rate by 525 bps to the current 5.25%-5.5% range since March 2022.

It will hold its first policy review for 2024 on Jan. 30-31.

On Tuesday, the BTr will auction off PHP 30 billion in fresh seven-year Treasury bonds (T-bonds).

The Treasury plans to raise PHP 195 billion from the domestic market this month, or PHP 75 billion via T-bills and PHP 120 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 5.1% of gross domestic product this year or PHP 1.39 trillion. — Luisa Maria Jacinta C. Jocson with Reuters