T-bill yields continue to ease amid rate cut bets

The government on Monday fully awarded Treasury bills (T-bills) as the market awaited further rate cuts by the Philippine central bank.

The Bureau of the Treasury (BTr) raised PHP 20 billion as planned from the T-bills it auctioned off as total bids reached PHP 76.445 billion, almost four times as much as the amount on offer, but lower than PHP 93.257 billion in tenders last week.

The Treasury borrowed PHP 6.5 billion via the 91-day T-bills as tenders for the tenor reached PHP 24.37 billion. The three-month paper was quoted at an average rate of 5.196%, 18.4 basis points (bps) lower than last week. Bids were 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 5.005% to 5.48%, down by 47.5 bps from last week.

The Treasury likewise raised PHP 7 billion 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%.

At the secondary market before the auction, the 91-, 182- and 364-day T-bills were quoted at 5.2578%, 5.3818% and 5.5599%, based on PHP Bloomberg Valuation Service Reference Rates data from the Treasury.

Investors were aggressive in locking in yields on expectations of further rate cuts by the Bangko Sentral ng Pilipinas (BSP), a trader said in a text message.

T-bill yields continued declining after Finance Secretary Ralph G. Recto said he would support a bigger rate cut at the central bank’s October meeting, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

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 50-bp 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 likely eased 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.

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

The BTr plans to borrow PHP 145 billion from the domestic market in October — 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