Imminent rate cuts spur demand for gov’t securities

Demand for short-term government securities and long-term debt notes up for auction this week is expected to stay strong, as investors seek to lock in higher yields ahead of further cuts in the policy rate.

The Bureau of the Treasury (BTr) will auction off P20 billion in Treasury bills (T-bills) on Tuesday or P6.5 billion each in 91- and 182-day paper and P7 billion in 364-day debt paper.

On Wednesday, the government will offer P25 billion in reissued 20-year T-bonds with a remaining life of 19 years and nine months.

“The recent jumbo maturity [Fixed Rate Treasury Note 10-59] proceeds are likely to be partly reinvested into T-bills, providing support for the segment,” Lodevico Ulpo Jr., vice president and head of fixed income strategies for ATRAM Trust Corp., said in a message.

Possible easing of inflation

Ulpo said that strong participation in the 20-year bonds is expected as investors aim to secure longer-term rates and extend their exposure, especially with anticipated rate cuts by the US Federal Reserve next month and potential follow-up rate cuts by the Bangko Sentral ng Pilipinas (BSP) in response to a possible easing of inflation in the coming months.

The BSP last week cut its policy rate by 25 basis points (bps), reducing the key rate to 6.25 percent. This was the first rate cut in almost four years or since November 2020, during the height of the pandemic.

The Monetary Board indicated that the BSP will pursue a “calibrated” shift toward a more accommodative monetary policy. BSP Governor Eli Remolona Jr. explained that this means the current easing cycle will be “gradual,” and he did not rule out the possibility of another 25 bps reduction, potentially at the October or December policy meeting.

“T-bills are likely going to clear on the lower end of the 5.90 to 6.05 percent range, while we expect the 20-year to clear between 6.175 and 6.250 percent,” Ulpo added.

For this month, the BTr wants to raise P220 billion from the domestic market, of which P80 billion will come from T-bills and P140 billion via T-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 percent of economic output this year. INQ