THE GOVERNMENT made a full award of the Treasury bills it auctioned off on Monday as yields dropped across all tenors, with investors looking to take advantage of still-high rates swamping the offer amid expectations of further monetary easing here and abroad.
The Bureau of the Treasury (BTr) raised P25 billion as planned from the T-bills it placed on the auction block as the offering was more than six times oversubscribed, with total bids reaching P156.428 billion. This was higher than the P125.04 billion in tenders recorded on Sept. 1.
The Auction Committee fully awarded the T-bill offer amid the strong demand and as all tenors fetched average rates that were lower than those seen at the previous auction and prevailing secondary market yields, the BTr said in a statement.
Broken down, the Treasury borrowed P8.5 billion as planned via the 91-day T-bills as total tenders for the tenor reached P37.225 billion. The three-month paper was quoted at an average rate of 5.046%, down by 8.1 basis points (bps) from the 5.173% recorded in the previous auction. Yields accepted ranged from 5% to 5.104%.
The government likewise raised P8.5 billion as programmed from the 182-day securities as tenders amounted to P63.072 billion. The average rate of the six-month T-bill was at 5.222%, falling by 10.1 bps from the 5.323% fetched last week, with accepted rates spanning from 5.185% to 5.248%.
Lastly, the Treasury sold the planned P8 billion in 364-day debt as demand for the tenor totaled P56.131 billion. The average rate of the one-year T-bill dropped by 12.7 bps to 5.376% from 5.457% previously. Tenders awarded carried rates from 5.373% to 5.383%.
At the secondary market before Monday’s auction, the 91-, 182-, and 364-day T-bills were quoted at 5.1769%, 5.3135%, and 5.4699%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.
The government fully awarded its T-bill offer as average yields continued to fall following the Bangko Sentral ng Pilipinas’ (BSP) latest rate cut and signals of one more reduction before yearend “that led more investors to lock in yields before they go down further in the coming months,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
Headline inflation also remains below the BSP’s 2-4% target despite the faster print seen in August, which could support one final reduction, he said. Inflation picked up to 1.5% last month from 0.9% in July, bringing the eight-month average to 1.7%.
The Monetary Board on Aug. 28 lowered benchmark borrowing costs by 25 bps for a third consecutive meeting, bringing the target reverse repurchase rate to 5%. It has now trimmed rates by a cumulative 150 bps since the start of its rate cut cycle in August 2024.
BSP Governor Eli M. Remolona, Jr. said that the policy rate is now at a “sweet spot” in terms of both inflation and output, but left the door open to one last cut this year to support growth if needed, which would likely mark the end of its current easing cycle.
The Monetary Board’s last two meetings this year are scheduled in October and December.
Mr. Ricafort added that expectations of monetary easing by the US Federal Reserve as early as next week following the soft jobs data released recently also helped pull T-bill yields down.
Markets are pricing in a 90% chance of a 25-bp rate cut by the Fed next week and a 10% probability of a larger 50-bp reduction, according to the CME FedWatch Tool, Reuters reported.
This comes after data on Friday showed US job growth weakened sharply in August and the unemployment rate rose to a near four-year high of 4.3%, confirming a softening labor market and bolstering the case for a rate cut this month.
T-bill rates also dropped amid the large demand seen for Monday’s offer, Mr. Ricafort said.
“Demand is noticeably higher compared to last week’s… This likely due to the 10-60 maturity tomorrow, as the resulting liquidity allows market players to buy more than usual in today’s auction, which then goes to explain the fall in yields,” a trader said in a text message, referring to the 10-year Treasury bonds (T-bonds) maturing on Tuesday.
The maturity is expected to add some P288.659 billion in liquidity to the financial system that could again be invested in government securities, Mr. Ricafort added.
On Tuesday, the government will offer P30 billion in reissued seven-year T-bonds with a remaining life of four years and 10 months.
The BTr is looking to raise P220 billion from the domestic market this month, or P100 billion via T-bills and P120 billion through T-bonds.
The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.56 trillion or 5.5% of gross domestic product this year. — Aaron Michael C. Sy
