RATES OF Treasury bills (T-bills) on offer today are likely to decline further on the back of easing inflation data and the central bank’s decision to cut policy rates and banks’ reserve requirement ratios (RRR).

The Bureau of the Treasury (BTr) will auction off P20 billion worth of T-bills today, broken down into P8 billion in three-month papers, P6 billion in six-month securities, and another P6 billion in one-year debt.

A bond trader said yields on the short-term debt papers will likely decline by five basis points (bps) across all tenors against the previous offering.

“[The market] will price in the recent cut in the RRR and the policy rate and the low inflation trend,” the trader said on Friday.

On Sept. 16, the government raised just P12.983 billion via T-bills out of the P15-billion program even as bids by banks were more than twice the its offering, totaling P35.1 billion.

Broken down, the BTr awarded P4 billion as planned via the 91-day T-bills with tenders amounting to P11.9 billion. The papers fetched a lower average yield of 3.037%.

The Treasury also borrowed P5 billion as programmed through the 182-day papers, with the tenor attracting bids worth P12.75 billion. The six-month securities’ average rate declined to 3.42%.

Meanwhile, the government only raised P3.983 billion via the 364-day T-bills out of a P6-billion program, even as total bids reached P10.403 billion as the average rate for the tenor inched up to 3.666%.

“Yields could adjust lower to partly reflect the latest 0.25-bp cut in local policy rate on Sept. 26 and the surprise decision to cut RRR by one percentage point on Sept. 27 (effective November 2019),” Rizal Commercial Banking Corp. (RCBC) economist Michael L. Ricafort said.

Headline inflation eased further to 0.9% in September, the slowest in three years, amid lower food prices and electricity rates, the Philippine Statistics Authority reported on Friday. This compares to the 1.7% logged in August and the 6.7% print in the same month last year.

Last month’s inflation print fell at the low end of the Bangko Sentral ng Pilipinas’ (BSP) 0.6-1.4% forecast for September. It was also below the 1.1% median estimate in BusinessWorld’s poll of 16 economists.

For the nine months to September, headline inflation averaged at 2.8%, well within the BSP’s 2-4% target range for 2019.

The central bank’s policy-setting Monetary Board slashed benchmark interest rates by another 25 bps at its meeting on Sept. 26 amid a manageable inflation outlook. This brought the rates for overnight reverse repurchase, overnight deposit and lending to four percent, 3.5% and 4.5%, respectively.

On Sept. 27, the central bank announced it will reduce lenders’ RRR by another 100 bps, which will take effect in November. This will bring the reserve requirement of universal and commercial banks to 15% from 16%, thrift banks to five percent from six percent, and to three percent from four percent for rural and cooperative banks.

The bond trader said lower US Treasury yields may also affect Monday’s auction results.

RCBC’s Mr. Ricafort added that lower global crude oil prices and weak US data on manufacturing and services sectors may cause yields on government securities to go down further.

“Higher possibility another [of a] Fed rate cut after the contraction in US manufacturing gauge to 10-year lows or since the previous global recession and US services gauge at three-year lows, thereby resulting to some easing in benchmark interest rates in the US and in other developed countries recently,” Mr. Ricafort said.

US services sector activity slowed to a three-year low in September amid rising concerns about tariffs, suggesting that trade tensions were spilling over to the broader economy.

The Institute for Supply Management (ISM) said its non-manufacturing activity index fell to a reading of 52.6 in September, the lowest since August 2016, from 56.4 in August. A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of US economic activity.

The ISM reported on Tuesday that its measure of national manufacturing activity plunged in September to its lowest level since June 2009, when the Great Recession was ending.

The US economy is chugging along despite the headwinds it faces, Federal Reserve Chair Jerome Powell said on Friday, in remarks that gave little more away about the path of monetary policy.

“While not everyone fully shares economic opportunities and the economy faces some risks, overall it is — as I like to say — in a good place. Our job is to keep it there as long as possible,” Mr. Powell said in brief remarks introducing a “Fed Listens” event at the US central bank’s headquarters in Washington.

The Fed cut interest rates for the first time in more than a decade in July and did so again at its subsequent policy meeting in September in what Mr. Powell and some others have characterized as “insurance” against risks to the economy.

US job growth increased moderately in September and the unemployment rate dropped to near a 50-year low, the US Labor department reported on Friday, allaying concerns the economy is nearing recession.

The government is set to borrow P220 billion from the local market this quarter, broken down into P100 billion in T-bills and P120 billion via 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. — Beatrice M. Laforga with Reuters

RELATED ARTICLESMORE FROM AUTHOR