RATES OF Treasury bills (T-bills) to be auctioned off this week may decline on the back of anticipation of more stimulus from the central bank following last week’s off-cycle cut.

The Bureau of the Treasury (BTr) is looking to raise P20 billion in T-bills on Monday, broken down into P10 billion in 91-day papers and P5 billion each via 182- and 364-day papers.

On Tuesday, the BTr will offer P15 billion worth of 35-day T-bills.

Kevin S. Palma, Robinsons Bank Corp. peso sovereign debt trader, sees rates dropping 15-25 basis points (bps) from the previous auction while a bond trader expects yields to fall 10-20 bps for the regular T-bill tenors and settle between 3.05% and 3.15% for the 35-day papers.

Last week, the Treasury fully awarded P20 billion in T-bills due to lower rates and strong demand, and raised another P5.8855 billion via the tap facility.

The government raised P10 billion via 91-day papers as planned at an average rate of 3.471%, up 5.8 bps from the previous rate of 3.413%. It also fully awarded its P5-billion offer of 182-day T-bills at an average rate of 3.409%, down 14.4 bps from 3.553% previously.

The BTr likewise accepted P5 billion worth of 364-day bills as planned out of total bids of P18.976 billion. The one-year papers fetched an average rate of 3.685%, lower compared to the previous rate of 3.845%.

Meanwhile, the government rejected all P29.617 billion bids for the 35-day T-bills on March 31 as rates soared, even as the total tenders were nearly twice as much as the P15-billion offer.

Had it made a full award, the reintroduced 35-day tenor would have fetched an average rate of 3.39% with the highest bid at 3.5%, both above the 3.098% rate at the secondary market that day.

At the secondary market on Friday, yields on the three-month, six-month, and one-year T-bills stood at 3.236%, 3.39%, and 3.513%, respectively, while the 35-day papers were quoted at 3.145%, based on the PHP Bloomberg Valuation Service Reference Rates.

For Mr. Palma, this week’s auctions will continue to see robust demand for the short-term papers and lower rates as the market reacts to the efforts of the Bangko Sentral ng Pilipinas (BSP) to cushion the economy from impact of the coronavirus disease 2019 (COVID-19) pandemic.

“Strong demand is expected to persist across the offering even after BSP cut policy rates to record low, with the central bank expected to do more easing to combat the effects of COVID-19 to the economy,” Mr. Palma said in a Viber message on Saturday.

A bond trader shared this view, adding the recent successful auctions following a series of full rejections at the onset of the Luzon-wide lockdown is an indication the BSP’s stimulus measures were effective.

“I think that average yields for T-bills will drop by at least 10 to 20 bps, possibly more, from the last auction as markets feel the stimulus measures by the BSP and governments abroad. The T-bills auction last April 6 was the first successful auction in a while and that was a sign that the markets felt these stimulus measures,” the trader said in a Viber message over the weekend.

The BTr had rejected all bids for four consecutive auctions due to soaring rates after the Luzon-wide lockdown took effect on March 17. After the 200-bp reserve requirement ratio (RRR) cut for universal and commercial banks took effect on April 3, rates went down and the BTr finally made a full award.

Yields continued to decline in the previous auction due to strong liquidity after the RRR cut and in anticipation of another reduction in policy rates and government bond maturities.

The BTr raised P84.925 billion last week via regular auctions and its tap facility, against its P190-billion borrowing plan for the whole month of April.

The BSP fired off another 50-bp cut in benchmark interest rates on Thursday in an off-cycle meeting, bringing down the key rate or the overnight reverse repurchase rate to a record low of 2.75% effective last Friday.

This followed the 50-bp cut announced on March 19 during its scheduled meeting, which took effect the following day.

The central bank has slashed policy rates by a total of 125 bps this year following 75 bps in cuts last year, completely reversing the 175 bps in hikes it fired off in 2018.

Analysts expect the BSP to ease policy rates further and bring down banks’ RRR by another 200 bps as the economy continues to be affected by the lockdown. — Beatrice M. Laforga

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