T-bond yields fall on rate cut bets

MANILA, Philippines  —The government was able to borrow as planned during Tuesday’s auction of Treasury bonds (T-bonds) after rates sought by local creditors fell amid expectations of monetary policy easing at home and in the US.

The Bureau of the Treasury (BTr) raised its target amount of P30 billion from the sale of T-bonds, with demand exceeding the original size of the offering by over three times to P91.4 billion.

The healthy appetite for the long-term debt securities, which are payable in 20 years, helped push down borrowing costs for the state.

Auction results showed the 20-year T-bonds fetched an average rate of 6.209 percent, lower than the 6.631 percent recorded in the previous auction of the comparable bonds last March 21, 2023.

The yield was also lower than the 6.405 percent quoted for the same tenor in the secondary market as of Feb. 27, 2024.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said expectations of a rate cut by the US Federal Reserve and Bangko Sentral ng Pilipinas (BSP) also helped the government borrow at a lower cost.

BSP seen to match Fed rate cut timing

“Average auction yield [was] much lower… amid the easing inflation trend already within the BSP’s inflation target of 2 to 4 percent that could support local policy rate cuts later this year, especially if the Fed starts cutting rates,” Ricafort said.

The BSP is widely expected to match the timing of Fed’s easing moves to avoid pressuring the peso, which may upset the inflation outlook at home by pushing up import costs.

READ: BSP keeps policy rate unchanged, as expected

At its first meeting this year, the central bank’s Monetary Board kept its key rate unchanged at 6.5 percent, the tightest in over 16 years, as it waits for a more convincing downtrend of inflation before deciding on loosening its monetary policy settings.

Data showed inflation softened to 2.8 percent in January, the lowest reading in over three years. That was the second consecutive month that price growth moderated to within the BSP’s 2 to 4 percent target after hovering above that range for 20 months.

READ: Gov’t unveils P585-B local borrowing plan for Q1 2024

The Marcos administration is planning to borrow P1.85 trillion onshore in 2024. Of that amount, P51 billion will be raised via Treasury bills while P1.8 trillion will come from weekly auctions of T-bonds.

Those borrowings are needed to help plug a projected budget hole of P1.39 trillion this year, which is equivalent to 5.1 percent of gross domestic product.