YIELDS of Treasury bills (T-bills) dipped again for the 14th time in the last 15 weeks as the Bangko Sentral ng Pilipinas (BSP) focuses on governance issues negatively impacting the economy and investor sentiment.
Last Monday the Bureau of the Treasury’s (BTr) auction committee awarded the full P22 billion short-dated debt papers up for sale.
Demand for T-bills was as much as 4.4 times oversubscribed, attracting P97.185 billion in total bids, as investors displayed strong demand for government securities.
According to Michael L. Ricafort, chief economist at the Rizal Commercial Banking Corp. (RCBC), investors are locking in yields before they drop further in the coming months amid dovish signals by the central bank.
Broken down, the government generated P7 billion by fully awarding the 91-day T-bills, with demand amounting to P25.210 billion.
The 91-day debt papers fetched an average rate of 4.880 percent, down by 16.7 basis points (bps) from the previous auction’s 5.047 percent. Rates ranged from a low of 4.870 percent to a high of 4.893 percent.
The 182-day T-bills capped at a 5.072 percent average rate, lower by 5.6 basis points from 5.128 percent in the last auction.
Posted bids for the government IOUs reached P36.760 billion, of which P7.5 billion was fully awarded.
As for the 364-day instruments, the average rate dropped by 10.9 basis points, settling at 5.119 percent from 5.228 percent a week ago.
The government awarded the full P7.5 billion as bids for the T-bills amounted to P35.215 billion.
Ricafort pointed to the ‘October 9 surprise,’ wherein monetary authorities cut key policy rates by 25bps and hinted at a possible rate cut in December.
The Monetary Board lowered the policy rates to 4.75 percent, the lowest policy rate recorded by the country since September 2022. That was the time when rates were raised by 50bps to 4.25 percent.
BSP Governor and Monetary Board Chairman Eli M. Remolona Jr. has said there may be room for monetary authorities to further reduce rates in the near future.
The dovishness of MB members may have been influenced by a weak outlook on the growth of the domestic economy, a stance Remolona linked to governance concerns surrounding public infrastructure spending, which has also weighed on business sentiment.
The central bank governor added that the stock market has declined with fewer and fewer companies pushing through with planned expansion. Remolona also noted there were days when the stock market and the peso declined at the same time, signifying that investors are leaving the country.
Nonetheless, the MB sees scope for a ‘more accommodative’ monetary policy stance, as the favorable inflation outlook and moderating domestic demand provide room to further support economic activity.
Hence, Ricafort sees a possible 25-basis points rate cut on December 11, matching the total 50-bps additional cuts the US Federal Reserve is expected to undertake before the year ends.
‘[This will] maintain healthy interest rate differentials as well, provided inflation remains relatively benign and the US dollar/peso exchange rate remains relatively stable,’ added the RCBC executive.
For this month, the Treasury will borrow a total of P88 billion by issuing T-bills of various tenors.
The government is also set to borrow this year a total of P2.6 trillion, of which around P2.112 trillion is expected to come from domestic sources and the remaining from foreign financiers.
As of end-August this year, the government’s outstanding debt reached P17.468 trillion.