T-bill yields fall below 5% as market anticipates rate cuts

THE GOVERNMENT made a full award of the Treasury bills (T-bills) it auctioned off on Tuesday as all tenors fetched average yields below 5%, with investors swamping the offer to lock in still-high rates ahead of expected cuts by the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) this week.

The Bureau of the Treasury (BTr) raised P22 billion as planned via the T-bills it placed on the auction block as the offer was more than four times oversubscribed, with total tenders reaching P88.225 billion. This was also higher than the P85.26 billion in bids recorded last week.

The Auction Committee made a full award as the T-bills were quoted at yields that were all lower than those fetched at last week’s offering, the Treasury said in a statement.

Broken down, the government raised P7 billion as planned from the 91-day T-bills as the tenor was met with demand worth P30.825 billion. The three-month paper fetched an average rate of 4.759%, down by 5.3 basis points (bps) from 4.812% in the previous auction. Yields accepted were from 4.712% to 4.828%.

The Treasury also made a full P7.5-billion award of the 182-day debt as bids reached P25.85 billion. The average rate of the six-month T-bill went down by 5.7 bps to 4.873% from 4.93% last week. Tenders awarded carried yields from 4.83% to 4.963%.

Lastly, the BTr likewise sold the programmed P7.5 billion in 364-day securities as bids for the tenor hit P31.55 billion. The one-year paper’s average yield was at 4.962%, declining by 4.9 bps from 5.011% the previous week. Accepted rates were from 4.943% to 4.998%.

At the secondary market before Tuesday’s auction, the 91-, 182-, and 364-day T-bills were quoted at 4.8732%, 4.999%, and 5.052%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

The government fully awarded its T-bill offer as yields went down week on week across the board and with all tenors fetching bids that were over three times the offered volume, a trader said in a text message.

“Lower yields across the board are likely in anticipation for the next FOMC (Federal Open Market Committee) meeting, as there is a high chance that there will be another rate cut,” the trader said.

The Fed was set to begin its two-day policy meeting overnight, where it is widely expected to lower borrowing costs.

The spotlight, though, is on what comes after the Fed’s December rate cut, with bond investors positioning for a shallow US easing cycle and many Wall Street banks predicting fewer Fed interest rate cuts in 2026 on lingering inflation concerns and expectations of a more resilient US economy, Reuters reported.

Traders are pricing in 77 bps of easing by the end of next year, according to LSEG data.

While a rate cut is broadly expected, some strategists think the Fed’s policy committee could be sharply divided.

T-bill yields also went down as the market expects another rate cut from the BSP this week, especially as November inflation came in slower than expected, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

He added that demand was strong as investors wanted to take advantage of the still relatively high T-bill yields before they go down further in line with expectations of further monetary easing by both the Fed and the BSP.

Headline inflation eased to 1.5% last month from 1.7% in October and 2.5% in November 2024, the Philippine Statistics Authority reported on Friday. This was within the BSP’s 1.1-1.9% forecast for the month but was a tad below the 1.6% median estimate in a BusinessWorld poll of 15 analysts.

The November clip brought the 11-month average to 1.6%, below the central bank’s 1.7% full-year forecast and 2-4% annual goal.

Analysts said below-target inflation and weakening growth could prompt the BSP to ease its policy settings further. A BusinessWorld poll showed that 17 of 18 analysts expect the Philippine central bank to deliver a fifth straight 25-bp reduction at its meeting on Thursday (Dec. 11) to bring the policy rate to 4.5%, its lowest since September 2022.

The central bank has cut benchmark borrowing costs by a total of 175 bps since it began its easing cycle in August 2024.

BSP Governor Eli M. Remolona, Jr. said last week that softer growth prospects raise the odds of a cut on Thursday. He earlier said that they could extend their rate cut cycle until next year to help provide economic stimulus as governance concerns have caused a slowdown in public spending and also dampened consumer and investor confidence.

The BTr wants to raise P101 billion from the domestic market this month, or P66 billion through T-bills and P35 billion via Treasury bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.56 trillion or 5.5% of gross domestic product this year. — A.M.C. Sy with Reuters