T-bill yields mostly steady ahead of CPI

The government hiked the volume of Treasury bills (T-bills) it awarded on Monday as average yields were mostly steady amid strong investor demand and ahead of the release of August inflation data.

The Bureau of the Treasury (BTr) raised PHP 22.6 billion from the T-bills it auctioned off on Monday, higher than the planned PHP 20 billion, as total bids reached PHP 53.105 billion or more than twice the amount on offer, and just a tad lower than the PHP 53.4 billion in tenders recorded at the Aug. 27 auction.

“The auction was 2.7 times oversubscribed …, 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 18.01 billion. The three-month papers were quoted at an average rate of 5.947%, 1.9 basis points (bps) lower than 5.966% recorded last week. Accepted rates ranged from 5.94% to 5.96%.

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 19.26 billion. The average rate of the six-month T-bill stood at 6.002%, up by 0.6 bp from the 5.996% fetched last week, with accepted rates at 5.98% to 6.02%.

Lastly, the Treasury raised PHP 7 billion as planned via the 364-day debt papers as demand for the tenor totaled PHP 15.835 billion. The average rate of the one-year debt inched up by 1.8 bps to 6.04% from the 6.022% quoted last week, with accepted rates at 6% to 6.055%.

At the secondary market before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.9154%, 5.9986%, and 6.0825%, respectively, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the Treasury.

The government upsized its T-bill award as the offer was met with strong demand, a trader said in an e-mail.

“The substantial auction volumes this week reflected strong investor demand for shorter-term issuances. Likewise, the mixed movement in yields is likely from uncertainty ahead of the Philippine inflation report this week,” the trader said.

Headline inflation likely eased in August and returned within the central bank’s 2-4% target band amid a drop in prices of rice and fuel, analysts said.

A BusinessWorld poll of 15 analysts conducted last week yielded a median estimate of 3.7% for the August consumer price index (CPI). This is within the 3.2-4% forecast of the Bangko Sentral ng Pilipinas (BSP) for the month.

If realized, this would be slower than the nine-month high of 4.4% in July and the 5.3% print in the same month a year ago.

The Philippine Statistics Authority will release August inflation data on Thursday (Sept. 5).

“Treasury average auction yields were again mostly slightly higher, similar to the week-on-week rise in the comparable short-term PHP BVAL yields, after the latest USD 2.5-billion Philippine government global bond issuance siphoned off some of the excess liquidity from the financial system… Nevertheless, most T-bill average auctions yields were still slightly below the comparable short-term PHP BVAL yields,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The government last week raised USD 2.5 billion from its sale of triple-tranche dollar-denominated global bonds, which marked its second foray into the international debt market this year. IFR reported that the government raised USD 500 million from 5.5-year bonds, USD 1.1 billion from 10.5-year notes, and USD 900 million from 25-year sustainability bonds.

Some investors are also locking in high returns on expectations of monetary easing here and abroad, Mr. Ricafort added.

Markets widely expect a rate cut at the US central bank’s Sept. 17-18 meeting following Fed Chair Jerome H. Powell’s dovish speech at the Jackson Hole Symposium last month. Futures are 100% priced for a cut of 25 bps this month, and imply a 33% probability of 50 bps, Reuters reported. They also have 100 bps of cuts priced in by December, and 120 bps for 2025.

Crucial for the Fed will be the payrolls report on Friday, where analysts look for a rise of 165,000 in jobs and a dip in the unemployment rate to 4.2%.

Meanwhile, the BSP last month cut benchmark interest rates for the first time in almost four years 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 on Aug. 15 reduced its policy rate by 25 bps to 6.25%.

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.

On Tuesday, the BTr will offer PHP 30 billion in reissued 20-year Treasury bonds (T-bonds) with a remaining life of three years and one day.

The Treasury wants to raise P195 billion from the domestic market this month, or PHP 80 billion through T-bills and PHP 115 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. — AMCS with Reuters