As expected, yields on Treasury bills (T-bills) fell further in Monday’s auction amid rate cut bets and the slashing of banks’ reserve requirement by the central bank.
The Bureau of the Treasury (BTr) was able to borrow its target amount of P20 billion via T-bills as the total offer was met with high demand.
Total orders booked for the debt paper amounted to P76.35 billion, exceeding the original size by nearly four times.
“Demand was strong at today’s T-bills auction, as participants aimed to lock in yields amid expectations of policy rate and reserve requirement ratio cuts,” a bond trader told the Inquirer.
The Bangko Sentral ng Pilipinas (BSP) decided to slash the reserve requirement of banks by 250 basis points (bps) to 7 percent from the current level of 9.5 percent, releasing over P300 billion into the financial system.
The bond trader said that the easing domestic inflation also supported sentiment toward local bonds.
Lower yields
Dissecting the auction result, the three-month T-bill fetched an average yield of 5.196 percent, down from the 5.380 percent recorded last week. Meanwhile, the rate for the 182-day paper fell to 5.005 percent, from 5.480 percent.
Creditors also asked for an average yield of 5.487 percent for the one-year debt paper. This was lower from the previous auction’s 5.583 percent.
In August, inflation dropped to its lowest level in seven months, reaching 3.3 percent, thanks to a slower rise in food and transport prices.
Looking ahead to September, a poll of 10 economists conducted by Inquirer suggests a positive outlook, predicting that the average inflation rate in the Philippines may have further declined to 2.5 percent.
Given the rosy outlook, BSP Governor Eli Remolona Jr. said that it is still possible to slash rates twice more this year on the back of easing inflation.
Lower rates
Meanwhile, Finance Secretary Ralph Recto echoed this sentiment, saying he expects inflation to slow down to 2.5 percent in September. This decline could enable the BSP to lower interest rates further, aligning with the US Federal Reserve’s substantial rate cut of 50 bps.
The government aims to borrow P145 billion from the local market in October, of which P100 billion will come from T-bills and P45 billion through Treasury bonds.