PHL T-bill, bond yields may ease on rate cut bets

Rates of Treasury bills (T-bills) and Treasury bonds (T-bonds) on offer this week are expected to fall due to dovish signals from Philippine Finance Secretary Ralph G. Recto.

The Bureau of the Treasury (BTr) will auction off PHP 20 billion in T-bills on Monday — PHP 6.5 billion each in 91- and 182-day debt and PHP 7 billion in 364-day securities.

On Tuesday, the government will offer PHP 15 billion in reissued seven-year T-bonds with a remaining life of four years and seven months.

The T-bond sale could be “fairly received,” with a rate ranging from 5.5% to 5.6% amid a still bullish government securities market, a trader said in an e-mail.

Yields on T-bills and T-bonds on offer this week could follow the easing of secondary market rates after Mr. Recto said he would support a 50-basis-point (bp) rate cut at the BSP’s October meeting, Michael L. Ricafort chief economist at Rizal Commercial Banking Corp., said in a Viber message.

At the secondary market, yields of the 91-, 182- and 364-day T-bills dropped by 47.81 basis points (bps), 49.77 bps, and 36.5 bps week on week to close at 5.2578%, 5.3818%, and 5.5599%, respectively, according to PHP Bloomberg Valuation Service Reference Rates data on Sept. 27 posted on the Philippine Dealing System website.

The seven-year yield went up by 1.67 bps to 5.6416%, while the five-year rate, the tenor closest to the remaining life of the T-bonds, slipped by 3.48 bps to 5.5874%.

Mr. Recto, who is also a Monetary Board member, has said the board could afford to slash interest rates further and match the size of the US Federal Reserve’s rate cut.

“The Fed reduced by 50 basis points. I think we can also do half a percent,” he told a news briefing last week.

Inflation would likely ease to 2.5% in September, he said, the slowest in nearly four years, after rising by 3.3% in the previous month. Mr. Recto said it could settle at 3.4% this year, within the central bank’s 2% to 4% target.

Slowing inflation allowed the central bank to cut the benchmark rate by 25 bps to 6.25% in August, its first rate cut since November 2020, ahead of major central banks including the Fed.

Yields also mostly dropped on Friday as the market awaited the local consumer price index (CPI) data release for August, Mr. Ricafort said. 

September inflation likely continued to slow at 2.5%, according to a median estimate of 15 analysts in a BusinessWorld poll. This could be the slowest in nearly four years.

Last week, the Treasury bureau raised PHP 20 billion as planned from the T-bills it auctioned off, as total bids reached PHP 93.257 billion.

The Treasury borrowed PHP 6.5 billion via 91-day T-bills, as tenders reached PHP 29.64 billion. The average rate for the three-month debt fell by 36.3 bps to 5.38% a week earlier.

The government likewise made fully awarded PHP 6.5-billion in 182-day securities, with bids reaching PHP 24.66 billion. The average rate of the six-month T-bill stood at 5.48%, down by 46 bps.

The Treasury also raised PHP 7 billion via the 364-day debt, as demand reached PHP 38.957 billion. The average rate of the one-year debt fell by 39 bps to 5.583%, with accepted rates at 5.58% to 5.6%.

The reissued seven-year bonds on offer on Tuesday were last auctioned off on Sept. 10, when the BTr raised PHP 30 billion at an average rate of 6.058%, below the 6.5% coupon.

The government plans to borrow PHP 145 billion from the domestic market in October, or PHP 100 billion in T-bills and PHP 45 billion in 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 economic output this year. – Aaron Michael C. Sy, Reporter