TREASURY bill (T-bill) yields fell on Monday as slow economic growth tempered expectations for aggressive monetary policy tightening, although short-term yields could remain high as the Bangko Sentral ng Pilipinas (BSP) tries to keep inflation under control.
The BSP could raise rates by a measured 25 basis points, then a hawkish pause, rather than pursue a faster tightening cycle, after second-quarter growth slowed sharply, said Manulife Investment Management and Trust Corp. Philippines Head of Fixed Income Jean Olivia De Castro.
‘Existing weak domestic demand raises the cost of overtightening even as inflation remains above target,’ De Castro said. ‘Amid higher inflation and [foreign exchange] risk, local monetary policy could stay restrictive for longer.’
Against this backdrop, short-dated bond yields, most sensitive to near-term BSP policy rates, could remain elevated while longer yields could fall as investors expect a closer end to the hiking cycle, she added.
The 91-day T-bill average yield dipped by 4.2 basis points to 4.995 percent from 5.037 percent recorded in the previous auction last week. The Treasury awarded yields ranging from 4.975 percent to 5.052 percent.
Likewise, the 182-day debt papers fetched an average yield of 5.545 percent, down by 10.7 basis points from a week ago’s 5.652 percent. Yields ranged from 5.6 percent to 5.670 percent.
Average yield on the 364-day securities slipped by 18.9 basis points to 5.723 percent from 5.912 percent. It has rates ranging from 5.898 percent to 5.938 percent.
Yields fell as second-quarter economic growth came in weaker-than-expected at 2.3 percent, reducing the urgency for the BSP to deliver more rate hikes, said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.
Demand for T-bills was also strong, leaving the Treasury swarmed as combined tenders reached P184.2 billion, making the auction 4.4 times oversubscribed.
This prompted the auction committee to double the non-competitive bids across all tenors to P16 billion for the 91-day, P12 billion for the 182-day and P5.6 billion for the 364-day tenor. With the outcome, the Treasury generated a total of P58.8 billion for the auction relative to the P42 billion programmed offering.
Investors could continue to demand higher yields from the government as compensation for holding longer-term government bonds, De Castro said.
As investments contracted by 9.2 percent and construction slumped by 14.8 percent in the second quarter, De Castro said near-term cash borrowing needs by the government may not surge immediately if spending is delayed.
However, borrowing requirements could become more uneven as projects restart and spending catches up, she noted.
‘The bigger implication is on the deficit dynamics: weaker investment or construction weighs on growth and revenues as the government may still need to finance priority spending over infrastructure spending,’ De Castro said.
‘For investors, that combination argues for a higher risk premium driven by policy/implementation uncertainty and the risk that weaker growth slows improvement in debt metrics,’ she added.
The government seeks to raise P2.682 trillion this year, following a 70:30 financing mix in favor of domestic sources.
So far, the government has borrowed P1.821 trillion to finance its programs and projects.
Outstanding debt of the national government climbed to an all-time high of P19.065 trillion, pushing the debt-to-GDP to a 22-year-high at 66 percent in the second quarter.