THE GOVERNMENT made a full award of the Treasury bills (T-bill) it auctioned off yesterday as yields on the shorter tenors went down following the central bank chief’s comments that the regulator intends to cut benchmark interest rates and banks’ reserve requirement ratio (RRR) again within the year.

During the auction yesterday, the Bureau of the Treasury awarded P15 billion in T-bills as planned as the offer was more than twice oversubscribed, with total bids amounting to P40.3 billion.

Broken down, the government raised P4 billion as programmed via the 91-day T-bills, with total tenders amounting to P11.35 billion. The tenor’s average rate declined by 10.5 basis points (bp) to 3.149% from the 3.254% fetched during the Aug. 19 offering.

The Treasury likewise raised P5 billion as planned via the 182-day papers out of bids worth P14.62 billion. The debt papers fetched an average rate of 3.429%, down by 4.2 bps from the 3.471% logged during the last auction.

For the 364-day T-bills, the government awarded P6 billion as programmed, with total tenders reaching P14.281 billion. The average yield however inched up by 2.3 bps to 3.659% from the previous auction’s 3.636%.

At the secondary market yesterday, 91-day, 182-day and 364-day debt papers were quoted at 3.319%, 3.506% and 3.695%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates.

Following the auction, National Treasurer Rosalia V. De Leon said rates of government securities (GS) rallied following dovish comments from Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.

“So we still continue to see the rates declining except of course for the one-year [T-bills]… This takes off from the pronouncements of the governor that there’s again possibility for a policy rate cut and also for the last quarter. They’re mulling also the possibility of another RRR cut,…providing more liquidity to the market,” Ms. De Leon told reporters.

Ms. De Leon also said that rates declined due to expectations of slower inflation in August.

A trader shared the same view, saying the rates on the shorter tenors declined as expected since the market favors the short-end of the curve amid expectations of monetary easing, not only at home but also in the United States.

“I think rates moved well-within expectations as investors continue to favor the front end of the GS curve ahead of any further policy tweaks by the BSP and the US Federal Reserve,” Robinsons Bank Corp. peso sovereign debt trader Kevin S. Palma said in a phone message.

“Icing on the cake was the reinvestment demand due to some P13.9-billion and P16-billion T-bill maturities on September 4 and September 11, respectively,” Mr. Palma added.

Mr. Diokno last week said the central bank is looking at cutting benchmark interest rates by another 25 bps before the end of the year.

The central bank has cut benchmark interest rates by a total of 50 bps so far this year — by 25 bp each on May 9 and Aug. 8 — to 4.25% for the overnight reverse repurchase rate, 4.75% for overnight lending and 3.75% for overnight deposit, partially dialing back the 175-bp cumulative hikes triggered last year by successive multi-year high inflation that peaked at a nine-year high.

Meanwhile, Mr. Diokno earlier said another cut in big banks’ RRR could happen anytime towards the next policy review on Sept. 26 — the sixth for the year. He had said that the Monetary Board’s consensus is to “pre-announce” plans for the reserve ratios on a quarterly basis.

The RRR now stands at 16% for big banks and six percent for thrift banks after the phased 200-bp cut implemented after an off-cycle meeting last May. The reserve ratio of rural and cooperative lenders was also cut to four percent from five percent effective May 31.

The central bank chief is committed to bring down the reserve requirement down to single digit when he ends his term in 2023.

On the other hand, in an e-mail to reporters last Friday, the BSP’s Department of Economic Research said it expects inflation in August to settle within the 1.3-2.1% range due to lower fuel, rice, and power prices. This compares to the 2.4% inflation rate logged in July and 6.4% in August last year.

A BusinessWorld poll of 12 economists late last week yielded a median inflation estimate of 1.8% for August.

“Now on the one-year [T-bill’s yield], if you would also look at the TDF (term deposit facility), results last week was about four [percent]… And for here no, it’s even lower than four. So it’s trying also to more or less, align…just to provide for the longer duration also, for the longer period for holding the T-bill,” Ms. De Leon said yesterday.

Weak appetite for term deposits pushed yields higher last week as bids continued to fall below the central bank’s offer.

The central bank received bids amounting to just P76.753 billion for its TDF last Wednesday, falling short of the P80 billion it wanted to sell.

Broken down, demand for seven-day papers amounted to P19.228 billion, failing to fill the P20 billion on offer. Rates for this tenor ranged from 4.25% to 4.74%, causing the average to settle at 4.4852%/

Appetite for the 28-day deposits was likewise lower as tenders reached only P33.203 billion against the P40-billion offer. Accepted yields played between 4.375% and 4.7% and averaged at 4.4832%.

Banks meanwhile flocked the 14-day papers as bids amounted to P24.322 billion against the BSP’s offering of P20 billion. Rates sought by lenders ranged from as low as 4.375% to a high of 4.6% and averaged at 4.375%.

The government is set to borrow P230 billion from the domestic market this quarter through T-bills and Treasury bonds.

It is looking to raise P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product. — BML