THE GOVERNMENT made a full award of the Treasury bills (T-bills) it offered on Monday as average rates dropped across the board, with the three-year tenor’s yield falling below the 5% mark, as the US Federal Reserve is expected to resume its easing cycle this week.
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 P154.154 billion. However, this was slightly lower than the P156.428 billion in tenders recorded on Sept. 8.
Broken down, the Treasury borrowed P8.5 billion as planned via the 91-day T-bills as total tenders for the tenor reached P47.86 billion. The three-month paper was quoted at an average rate of 4.95%, down by 9.6 basis points (bps) from the 5.046% recorded in the previous auction. Yields accepted were from 4.908% to 5%.
The government likewise raised P8.5 billion as programmed from the 182-day securities as tenders amounted to P53.92 billion. The average rate of the six-month T-bill was at 5.148%, easing by 7.4 bps from the 5.222% fetched last week, with accepted rates spanning from 5.11% to 5.175%.
Lastly, the Treasury sold the planned P8 billion in 364-day debt as demand for the tenor totaled P52.374 billion. The average rate of the one-year T-bill dropped by 10.4 bps to 5.272% from 5.376% previously. Tenders awarded carried rates from 5.263% to 5.283%.
At the secondary market before Monday’s auction, the 91-, 182-, and 364-day T-bills were quoted at 5.0896%, 5.2143%, and 5.3531%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.
The government fully awarded its T-bill offer as the auction saw strong demand amid expectations of a rate cut at this week’s Federal Open Market Committee meeting, a trader said in a text message.
“Yields fell by 7.4 to 10.4 bps across the board with all the tenors fully awarded. Notably, the 91-day bill’s yield has fallen below the 5% overnight RRP (reverse repurchase) rate,” the trader said.
The last time the 91-day T-bill was awarded at an average rate below 5% was in March 2023, BTr data showed. This was when the Bangko Sentral ng Pilipinas (BSP) was in the middle of an aggressive tightening cycle due to red-hot inflation as the economy came out of the coronavirus pandemic.
“Treasury bill average auction yields were again mostly slightly lower for the 11th straight week… amid the series of BSP rate cuts in recent months and possible BSP and Fed rate cuts in the coming months,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
He said that soft US economic data released recently bolstered bets of a 25-bp cut from the Fed at their Sept. 16-17 meeting and also caused markets to price in further reductions this year.
The US central bank has kept its target rate at the 4.25%-4.5% range since December 2024 as officials preferred to stay cautious while assessing the impact of President Donald J. Trump’s trade policies on inflation and jobs.
The Fed is almost certain to resume its easing cycle this week and perhaps leave the door wide open to a series of cuts, Reuters reported.
Markets are 100% priced in for an easing of 25 bps from the Fed, taking its funds rate to 4-4.25%, with futures implying just a 4% chance of 50 bps.
Just as important will be Fed members’ “dot plot” projections for rates and guidance from Fed Chair Jerome H. Powell on the extent and pace of any further easing.
Futures already have 125 bps of cuts priced in by late 2026, so anything less than dovish will disappoint investors.
Meanwhile, the BSP last month lowered benchmark borrowing costs by 25 bps for a third consecutive meeting to bring the policy rate to 5%. It has now cut benchmark rates by a total of 150 bps since it began its easing cycle in August 2024.
BSP Governor Eli M. Remolona, Jr. said the current policy rate is now at a “sweet spot” for both inflation and output, although one more reduction is possible within this year to support the economy if needed, which would likely mark the end of their rate-cut cycle.
The Monetary Board’s last two meetings this year are scheduled on Oct. 9 and Dec. 11.
On Tuesday, the government will offer P25 billion in reissued 10-year Treasury bonds (T-bonds) with a remaining life of nine years and seven 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 with Reuters