Gov’t sells P15B in T-bills as rates fall further

The Bureau of the Treasury on Monday sold all P15 billion in T-bills as a more liquid market coupled with expectations of monetary easing here and abroad further pulled down rates across the board.

The Treasury awarded P4 billion in the benchmark 91-day debt paper at an average rate of 3.883 percent, down 50.2 basis points (bps) from 4.385 percent during the previous auction.

It also sold P5 billion in 182-day treasury bills at 4.238 percent, down 48.5 bps from 4.723 percent previously.

The P6 billion in 364-day IOUs fetched an annual rate of 4.736 percent, down 25 bps from 4.986 percent.

The yields were below secondary market rates, the Treasury said in a statement.

Tenders across the three tenors totaled P50.5 billion, making the auction more than thrice oversubscribed.

National Treasurer Rosalia V. de Leon told reporters after the auction that the excellent turnout in the volume of bids came on the back of additional liquidity injected into the system following the first tranche of reduction in banks’ reserve requirement ratio (RRR).

It also helped that “supply is very limited” as the Treasury reduced the total offerings of government securities for the third quarter to P230 billion from P315 billion in the second quarter, she said.

“We have downsized our
T-bills issuance so the demand is higher but supply is lower,” she noted.

De Leon also pointed to signs of another interest rate cut by the Bangko Sentral ng Pilipinas (BSP) after inflation fell to a 22-month low of 2.7 percent last month, on top of market consensus that the US Federal Reserve would cut interest rates by 25 bps this month.

Other economists also expect the BSP to lower interest rates.

In a research note issued on Friday, Japanese investment house Nomura said that it expected the inflation-targeting BSP to reduce its overnight policy rates by a total of 50 basis points (bp) this third quarter, allowing the local monetary authority to focus on supporting growth. It sees a 25-bp cut in each of the next two meetings in August and September.

British bank HSBC, for its part, is expecting two 25-bp overnight policy rate cuts this second semester, with the first cut seen in August. It is also expecting a 100-bp cut to the reserve requirement ratio in the fourth quarter.

Dutch bank ING is projecting a policy rate cut by the BSP at its August meeting “should inflation continue to show it will remain within target and second quarter growth is projected to be soft.”

“BSP Governor (Benjamin) Diokno has sounded off on the possibility of more policy rate cuts within the year and the slower inflation print should afford them proper scope to ease monetary policy further. With inflation well-within target, BSP will likely look to tap on the accelerator once more after having slammed hard on the brakes in the previous year,” ING Philippines economist Nicholas Mapa said.