T-bill demand spikes on imminent rate cuts

The government increased the volume of Treasury bills (T-bills) it awarded during Tuesday’s auction even as rates were mixed, as it saw strong demand for the short-term debt notes.

This was driven by rising expectations of interest rate cuts by both the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve this year.

The Bureau of the Treasury (BTr) raised P22.6 billion via the T-bills it offered on Tuesday, above the initial P20-billion program, as total bids reached P53.4 billion or nearly thrice the amount on the auction block.

READ: BTr increases T-bills offer to P22.6B, yields mixed

Broken down, the 91-day T-bill fetched an average rate of 5.966 percent, more expensive than the 5.940 percent recorded in the previous auction.

For the 182-day paper, lenders asked for an average yield of 5.996 percent, higher than the 5.989 percent last week.

The rate for 364-day T-bills averaged 6.022 percent, a notch cheaper from the previous auction’s 6.023 percent.

“We continue to see strong demand, with BTr taking advantage by awarding more,” a bond trader said.

Likewise, Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said that the higher volume awarded yesterday was “fundamentally due to higher demand amid the recent and possible rate cuts before further BSP and Fed rate cuts in the coming months.”

At its Aug. 15 policy meeting, the BSP earlier 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.

READ: 2 more BSP rate cuts seen in 2024

BSP Governor Eli Remolona Jr. said there was room for one more 25-bp cut either at the October or December meeting of the central bank.

The government plans to raise P220 billion from the local market this month of which P80 billion will come from T-bills and P140 billion via T-bonds.

This week’s auctions are the last two for the month.

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.