T-bill rates drop further on robust demand

THE GOVERNMENT made a full award of the Treasury bills (T-bills) it offered on Monday as yields declined across the board amid strong demand after the central bank announced it would cut banks’ reserve requirement ratios (RRR) and the Finance chief said he would back a big rate cut at the Monetary Board’s next policy meeting to mirror the US Federal Reserve’s latest move.

The Bureau of the Treasury (BTr) raised P20 billion as planned from the T-bills it auctioned off on Monday as total bids reached P93.257 billion, almost five times as much as the amount on offer and higher than the P77.899 billion in tenders seen the previous week.

Broken down, the Treasury borrowed P6.5 billion as programmed from the 91-day T-bills as tenders for the tenor reached P29.64 billion. The three-month papers were quoted at an average rate of 5.38%, 36.3 basis points (bps) lower than 5.743% recorded last week, with the BTr only accepting bids with this yield.

The government made a full P6.5-billion award of the 182-day securities, with bids for the tenor reaching P24.66 billion. The average rate of the six-month T-bill stood at 5.48%, down by 46 bps from the 5.94% fetched last week and with all accepted bid yields being at this level.

Lastly, the Treasury raised P7 billion as planned via the 364-day debt papers as demand totaled P38.957 billion. The average rate of the one-year debt fell by 39 bps to 5.583% from the 5.973% quoted last week, with accepted rates ranging from 5.58% to 5.6%.

At the secondary market before the auction, the 91-, 182-, and 364-day T-bills were quoted at 5.7359%, 5.8795%, and 5.9249%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

The government fully awarded its offer as rates declined across all tenors after the BSP announced reductions to banks’ reserve ratios, a trader said in a text message.

The RRR cut will free up about P400 billion in liquidity, which banks can lend and put in instruments like government debt, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The BSP on Friday said it will reduce the RRR for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% effective on Oct. 25.

It will also cut the RRR for digital banks by 200 bps to 4%, while the ratio for thrift lenders will be reduced by 100 bps to 1%. Rural and cooperative banks’ RRR will likewise go down by 100 bps to 0%.

T-bill yields rallied after Finance Secretary Ralph G. Recto’s rate cut comments, the trader added.

Mr. Recto, who represents the government in the central bank’s rate-setting board, said he will back a 50-bp rate cut at the panel’s next meeting in October, Bloomberg reported.

“Yes, I will support a similar rate cut,” Mr. Recto said in a mobile phone message when asked whether he sees a more compelling reason for Bangko Sentral ng Pilipinas to reduce borrowing costs again at next month’s meeting after the Federal Reserve’s half-point easing move last week.

The Finance chief’s remarks on Thursday came a day after BSP Governor Eli M. Remolona, Jr. signaled that the Fed move isn’t the main consideration in deciding borrowing costs.

The BSP began its easing cycle on Aug. 15 with a 25-bp cut that brought its policy rate to 6.25%.

Mr. Remolona has said they could slash benchmark interest rates by another 25 bps within the year. The Monetary Board’s last two policy-setting meetings this year are on Oct. 17 and Dec. 19.

Monday’s T-bill auction was the last for the month. The government raised P85.2 billion from the short-term papers in September, higher than the P80-billion program, as it hiked the awarded volume at two of its four auctions.

On Tuesday, the BTr will offer P25 billion in reissued 20-year Treasury bonds (T-bonds) with a remaining life of 19 years and eight months.

The Treasury wants to raise P195 billion from the domestic market this month, or P80 billion through T-bills and P115 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.48 trillion or 5.6% of gross domestic product for this year. — A.M.C. Sy with Bloomberg