THE GOVERNMENT fully awarded the Treasury bills (T-bills) it offered on Monday amid strong demand and even as yields climbed across all tenors as investors sought to lock in higher returns ahead of an expected Bangko Sentral ng Pilipinas (BSP) rate cut this week.
The Bureau of the Treasury (BTr) raised P20 billion as planned from the T-bills it auctioned off on Monday as total bids reached P51.735 billion, more than twice as much as the amount on offer. This was also higher than the P38.5 billion in tenders seen the previous week.
Broken down, the Treasury borrowed P6.5 billion as programmed from the 91-day T-bills as tenders for the tenor reached P21.415 billion. The three-month paper was quoted at an average rate of 5.444%, 3 basis points (bps) higher than the 5.414% recorded last week, with bids ranging from 5.4% to 5.5%.
The government also made a full P6.5-billion award of the 182-day securities, with bids reaching P11.92 billion. The average rate of the six-month T-bill stood at 5.668%, up by 19.4 bps from the 5.474% fetched last week, with accepted bid yields at 5.48% to 5.8%
Lastly, the Treasury raised P7 billion as planned via the 364-day debt papers as demand for the tenor totaled P18.4 billion. The average rate of the one-year debt went up by 8.3 bps to 5.623% from the 5.54% quoted last week, with accepted rates ranging from 5.6% to 5.674%.
At the secondary market before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.0431%, 5.4469%, and 5.6166%, respectively, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the Treasury.
“The higher tendered T-bill rates today reflected the mixed market expectations on the BSP policy decision this week. In anticipation of this rate cut, investors rushed to secure better short-term rates,” a trader said in an e-mail on Monday.
The BSP will likely cut benchmark interest rates by 25 bps for a second straight meeting on Wednesday to continue its easing cycle amid an improving inflation outlook, analysts said.
A BusinessWorld poll conducted last week showed that 16 out of 19 analysts expect the Monetary Board to reduce borrowing costs by 25 bps at its policy meeting on Oct. 16 to bring the target reverse repurchase rate to 6% from the current 6.25%.
On the other hand, two analysts expect the BSP to cut by a bigger 50 bps this week, while one sees the BSP keeping rates unchanged.
The Monetary Board began its easing cycle with a 25-bp cut in August, marking the first time it reduced borrowing costs in nearly four years.
Analysts said slowing inflation strengthens the case for another rate cut this week.
Philippine headline inflation sharply slowed to 1.9% year on year in September from 3.3% in August and 6.1% a year ago.
This was below the central bank’s 2%-2.8% forecast for the month. It was also the slowest in over four years or since the 1.6% in May 2020.
For the first nine months, inflation averaged 3.4%, matching the central bank’s full-year forecast and also falling within its 2-4% annual target.
BSP Governor Eli M. Remolona, Jr. earlier said the Monetary Board could slash benchmark rates by a total of 50 bps this quarter via two 25-bp cuts at its last two meetings for the year.
“T-bill average auction yields again corrected higher for the second straight week and are now unusually higher than the comparable PHP BVAL yields amid a weaker peso exchange rate,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
The peso closed at P57.205 per dollar on Friday, strengthening by 15.5 centavos from its P57.36 finish on Thursday, Bankers Association of the Philippines data showed. However, week on week, the peso sank by 91 centavos from its P56.295 finish on Oct. 4.
The dollar index was just above 103 and closing in on last week’s peak, its highest since mid-August, on the back of traders reducing bets on further jumbo rate cuts by the US Federal Reserve at its remaining meetings this year, Reuters reported.
Traders have priced out any chance of a 50-bp rate cut from the Fed in November after data last week showed consumer prices rose slightly more than expected in September and recent economic releases have also underscored strength in the labour market.
Mr. Ricafort added that the repricing of Fed rate cut bets also caused T-bill yields to rise on Monday.
On Tuesday, the Treasury will offer P15 billion in reissued 10-year Treasury bonds (T-bonds) with a remaining life of six years and nine months.
The BTr is looking to raise P145 billion from the domestic market this month, or P100 billion via T-bills and P45 billion through T-bonds.
The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.48 trillion or 5.6% of gross domestic product this year. — A.M.C. Sy with Reuters
