T-bill yields mostly higher before inflation data

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THE GOVERNMENT made a full award of the Treasury bills (T-bills) it offered on Monday amid strong demand and even as rates mostly went up on expectations of faster October inflation.

The Bureau of the Treasury (BTr) raised P20 billion as planned from the T-bills it auctioned off on Monday as total bids reached P69.87 billion, more than thrice as much as the amount on offer and higher than the P56.046 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 P19.155 billion. The three-month paper was quoted at an average rate of 5.605%, 1.9 basis points (bps) higher than the 5.586% recorded last week, with bids ranging from 5.598% to 5.648%.

The government also made a full P6.5-billion award of the 182-day securities, with bids reaching P26.065 billion. The average rate of the six-month T-bill stood at 5.735%, down by 1.7 bps from the 5.752% fetched last week, with accepted bid yields at 5.724% to 5.76%

Lastly, the Treasury raised P7 billion as planned via the 364-day debt papers as demand for the tenor totaled P24.65 billion. The average rate of the one-year debt went up by 3.5 bps to 5.786% from the 5.751% quoted last week, with accepted rates ranging from 5.75% to 5.795%.

At the secondary market before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.3267%, 5.7955%, and 5.8008%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

T-bill rates ended mostly higher to track the slight week-on-week increase in secondary market yields on expectations that headline inflation accelerated last month, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Philippine inflation likely picked up in October amid higher prices of food and fuel, analysts said last week.

A BusinessWorld poll of 11 analysts yielded a median estimate of 2.4% for the October  consumer price index (CPI), within the Bangko Sentral ng Pilipinas’ (BSP) 2-2.8% forecast for the month.

If realized, October inflation would be faster than the 1.9% in September. Still, this would be slower than the 4.9% in the same month a year ago and fall within the BSP’s 2-4% annual target.

The Philippine Statistics Authority will release October CPI data on Tuesday (Nov. 5).

“The demand for the 182-day tenor was the highest at P26.065 billion, which partly led to the slightly lower auction yield, as some investors lock in relatively higher yields amid market expectations of future US Federal Reserve rate cuts that could be matched locally,” Mr. Ricafort added.

He said the T-bill offer also attracted strong demand following the cut in banks’ reserve requirement ratios (RRR), which freed up about P400 billion in liquidity.

The BSP has reduced the RRR for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% from 9.5% effective on Oct. 25.

It also slashed the RRR for digital banks by 200 bps to 4%, while the ratio for thrift lenders was reduced by 100 bps to 1%. Rural and cooperative banks’ RRR was brought down by 100 bps to 0%.

Traders of futures that settle to the Fed’s policy rate instead moved to price in about a 99% chance that the central bank on Nov. 7 would cut its policy rate by a quarter of a percentage point to the 4.5%-4.75% range, compared with 92% before the release of the jobs data, Reuters reported. They see about an 83% chance that the policy rate will be in the 4.25%-4.5% range by the end of this year, compared with 69% earlier.

Fed policy makers will begin their next two-day policy meeting a day after the US presidential election on Tuesday, and though the result is not expected to directly factor into their decision two days later, many analysts see election uncertainty as an added temporary weight on the labor market in October that could be reversed in coming months.

Financial markets currently see the Fed lowering its policy rate to the 3.50%-3.75% range by September of next year.

Meanwhile, the BSP has so far lowered benchmark borrowing costs by a total of 50 bps since it began its easing cycle in August, bringing its policy rate to 6%.

BSP Governor Eli M. Remolona, Jr. has signaled a possible 25-bp cut at the Monetary Board’s policy meeting on Dec. 19, which is its last review for the year.

T-bill rates moved mostly sideways from the previous week due to a lack of catalysts, a trader said in a text message.

The BTr is looking to borrow P90 billion from the domestic market this month, or P60 billion via T-bills and P30 billion through Treasury 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

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