Treasury bill rates may decline slightly

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TREASURY BILLS (T-bill) on offer today are expected to fetch slightly lower rates following dovish remarks by the central bank.

The Bureau of the Treasury is offering P15 billion worth of Treasury bills today, broken down into P4 billion, P5 billion, P6 billion for the three- and six-month and one-year debt papers, respectively.

A bond trader said the short-term securities may fetch “slightly lower” yields today.

“91[-day] T-bill kasi, it’s already below the policy rate ng BSP (Bangko Sentral ng Pilipinas). It’s basically nagpa-park na ng funds ‘yung investors. We’re concerned na because the BSP already hinted on a cut by the end of this year (The 91-day T-bill’s rate is already below the BSP’s policy rate. Basically, investors are parking their funds while rates are still relatively high since we’re already concerned because the BSP already hinted on a cut by the end of this year,” a bond trader said over the phone on Friday.

Meanwhile, another bond trader said in a phone interview that T-bill rates will likely move sideways as the market still look for “new catalyst both locally and offshore.”

The government fully awarded the T-bills it offered last Aug. 19 as rates declined across all tenors on the back of dovish remarks from central bank officials here and abroad and strong liquidity.

The Treasury made a full award of T-bills worth P15 billion at that auction as its offer was more than thrice oversubscribed, with tenders totalling P45.8 billion.

Broken down, the government raised P4 billion as planned via the 92-day T-bill, with tenders reaching P10.76 billion. The tenor’s average rate dropped to 3.254% yesterday, 14.4 basis points (bp) lower than the 3.398% fetched during the Aug. 6 offering.

For the 183-day debt papers, the Treasury fully awarded P5 billion as programmed out of bids worth P14.11 billion. The average yield declined 20.6 bps to 3.471% from the previous offer’s 3.677%.

The government also raised P6 billion as planned via the 365-day T-bills, with tenders amounting to P20.885 billion. The one-year tenor’s average rate declined 26.2 bps to 3.636% from the 3.898% logged during the previous T-bill offering.

The T-bill tenors were adjusted due to the advance settlement date of Aug. 20, with Aug. 21 being a non-working holiday.

At the secondary market last Friday, the three-month, six-month and one-year T-bills were quoted at 3.319%, 3.518% and 3.687%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, Bangko Sentral ng Pilipinas (BSP) chief Benjamin E. 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’ reserve requirement ratio (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 RRR 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 ratios 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.

The Philippine Statistics Authority will also report August inflation data on Thursday, Sept. 5.

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.

The lower end of the BSP’s estimate matches the 1.3% print logged in June, July, and August 2016 and will the slowest reading since the 0.9% clip posted in May 2016. Meanwhile, the upper end of the forecast range is equal to November 2016’s 2.1% pace and would be the slowest since October 2016’s 1.8%.

A BusinessWorld poll of 12 economists late last week yielded a median inflation estimate of 1.8% for August, settling above the midpoint of the 1.3-2.1% forecast range provided by the BSP’s Department of Economic Research.