T-bill rates may decline further as inflation slows

Rates of the Treasury bills (T-bills) on offer this week could ease further after Philippine headline inflation slowed to an over four-year low in September, which gives the central bank room to continue its policy easing cycle.

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

T-bill rates may drop further to track the movement of secondary market yields on Friday following the slower-than-expected September inflation print, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Mr. Ricafort said the slower September CPI “could fundamentally justify further or even more aggressive local policy rate cuts.”

“Some knee-jerk reaction was seen. However, heavy profit taking still dominated the market,” a trader added in an e-mail.

“We expect a defensive sentiment in the meantime on lack of local catalysts and as market is wary of the oil price surge on the back of geopolitical tensions in the Middle East,” the trader said.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills saw their yields decline by 14.25 basis points (bps), 8.96 bps, and 5.13 bps week on week to end at 5.1153%, 5.29225086%, and 5.5086%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data as of Oct. 4 published on the Philippine Dealing System’s website.

Headline inflation sharply slowed to an over four-year low in September amid lower food and transport prices, the Philippine Statistics Authority reported on Friday.

The consumer price index (CPI) eased to 1.9% year on year in September from 3.3% in August and 6.1% a year ago.

This was the slowest CPI in 52 months or since the 1.6% print in May 2020.

The September print was also below the Bangko Sentral ng Pilipinas’ (BSP) 2%-2.8% forecast for the month and the 2.5% median estimate in a BusinessWorld poll of 15 analysts.

In the first nine months of the year, Philippine headline inflation averaged 3.4%, matching the BSP’s full-year forecast and within its 2-4% target range for 2024.

Analysts said the lower September CPI gives the BSP space to bring down benchmark interest rates further.

BSP Governor Eli M. Remolona, Jr. has said the Monetary Board could slash benchmark interest rates by 50 bps more this year and deliver two more 25-bp cuts at its next two meetings scheduled for Oct. 16 and Dec. 19.

The central bank began its easing cycle in August, cutting its policy rate for the first time in nearly four years by 25 bps to 6.25% from the over 17-year high of 6.5%.

Meanwhile, oil prices rose and settled with their biggest weekly gains in over a year on Friday on the mounting threat of a region-wide war in the Middle East, but gains were limited as US President Joseph R. Biden discouraged Israel from targeting Iranian oil facilities, Reuters reported.

Investors remained anxious about how Israel would respond after Iran fired missiles at it on Tuesday. Supreme Leader Ayatollah Ali Khamenei said earlier that Iran and its regional allies will not back down.

US crude settled up 0.9% at USD 74.38 a barrel and Brent settled at USD 78.05 per barrel, up 0.55% on the day.

Last week, the BTr raised PHP 20 billion as planned from the T-bills it auctioned off as total bids reached PHP 76.445 billion or almost four times as much as the amount on offer.

The Treasury borrowed the programmed PHP 6.5 billion via the 91-day T-bills as tenders for the tenor reached PHP 24.37 billion. The average rate for the three-month paper eased by 18.4 bps to 5.196% from the previous week, with accepted yields ranging from 5.15% to 5.248%.

The government also fully awarded PHP 6.5 billion in 182-day securities, with bids reaching PHP 26.245 billion. The average rate of the six-month debt was down by 47.5 bps to 5.005%. Accepted bid yields were at 5% to 5.02%

The Treasury likewise raised PHP 7 billion as planned via the 364-day debt as demand reached PHP 25.83 billion. The average rate of the one-year debt fell by 9.6 bps to 5.487% from last week, with accepted rates at 5.4% to 5.525%.

The BTr plans to borrow PHP 145 billion from the domestic market in October, or PHP 100 billion via T-bills and PHP 45 billion through Treasury 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. — A.M.C. Sy with Reuters