Treasury revives CMBs to manage liquidity needs

By Aaron Michael C. Sy, Reporter and Justine Irish D. Tabile, Senior Reporter

THE BUREAU of the Treasury’s (BTr) decision to revive cash management bills (CMBs) for the first time since the pandemic reflects efforts to manage short-term liquidity needs amid elevated interest rates, analysts said.

The BTr raised P89.6 billion on Monday through Treasury bills (T-bills) and CMBs, with P50 billion coming from T-bills and P39.6 billion from CMBs.

The total amount raised was just below the P90-billion target despite tenders reaching P148.329 billion.

The government sold P20 billion in 35-day CMBs at an average rate of 4.611% and P19.6 billion in 63-day bills at 4.942%. Meanwhile, average yields on the 91-day, 182-day, and 364-day T-bills were at 5.171%, 5.694%, and 6.124%, respectively.

Monday marked the government’s first CMB offering since 2020, when the Treasury sold the 35-day bills during the pandemic to address funding pressures.

“These are issued for our liquidity management,” National Treasurer Sharon P. Almanza said in a Viber message. “The NG (National Government) will be able to meet our financing requirements for the year since we have other funding options. Issuing on the short end will help ease rates on the mid to long end of the curve.”

However, Ms. Almanza noted domestic yields are still mainly driven by rate hike expectations, movements in US Treasury yields, oil prices, and peso weakness among others.

Based on Treasury data, weighted average T-bill yields were at 4.958%, 5.465%, and 5.772% for the 91-, 182-, and 364-day tenors in May, up sharply from just 4.415%, 4.510%, and 4.579% in February or before the Iran war began.

Meanwhile, bond yields ranged from 6.933% to 7.705% across all tenors at the belly and the long end in May, surging from 5.296%-5.893% in February.

“The market reacted positively to the Bureau of the Treasury’s issuance of CMBs, as it provides greater flexibility in meeting funding requirements amid a still-elevated interest rate environment,” China Banking Corp. Chief Economist Domini S. Velasquez told BusinessWorld.

“By utilizing short-term instruments, the BTr can address temporary cash needs without having to lock in higher borrowing costs at longer maturities,” she added.

Ms. Velasquez said the move will also reduce near-term supply pressure in Treasury bills and bonds and help keep yields lower.

“CMBs are usually deployed if long-term interest rates are higher since these have shorter tenors, enabling the government to raise more peso funds at lower interest rates at the short end of the yield curve to partly fund the budget deficit while waiting for long-term interest rates to go down further,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

CMBs are typically used to meet immediate cash requirements and address temporary mismatches between government revenues and expenditures.

The issuance of CMBs with tenors shorter than 91 days allows the government to address short-term liquidity needs, Sun Life Investment Management and Trust Corp. President Michael Gerard D. Enriquez likewise said in a Viber message.

“The move to issue CMBs likely reflects short-term cash flow mismatches — timing gaps between expenditures and revenue collections — rather than a shift in overall funding needs, pointing to active liquidity management as the Treasury smooths its cash position,” Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said.

The National Government’s budget deficit narrowed by 14.44% to P324 billion in the January-to-April period amid muted spending.

For the four-month period, expenditures increased by 5.12% to P1.996 trillion, while revenues jumped by almost 10% to P1.67 trillion.

In April alone, the budget surplus declined by 53.29% to P31.4 billion from P67.3 billion in the same month a year ago.

Mr. Asuncion said these short-term instruments are usually tapped on an “as needed basis when cash buffers run low, suggesting a tactical rather than structural adjustment to borrowing strategy.”

A trader said in a text message that CMB issuances can be expected at least for the third quarter as long as the US-Iran peace deal holds, as this will result in lower oil prices.

In 2020, the 35-day bill was issued from April to August, or during the early pandemic-induced lockdowns.

“If that happens, we expect recovery in demand for bonds with longer duration as it will also lessen the expectation of BSP policy rate hikes moving forward,” the trader added.

Ms. Velasquez said she views CMBs mainly as a tactical cash management tool rather than a permanent funding source.

“Their use is likely to be driven by short-term liquidity needs and market conditions, with the Treasury expected to return to its traditional mix of Treasury bills and bonds as interest rates normalize,” she added.

On the other hand, Mr. Asuncion said that CMBs could become a more regular complement to the Treasury’s funding toolkit.

“Looking ahead, CMBs could become a more regular complement to the funding toolkit given their flexibility, speed, and ability to finetune cash balances, though not necessarily a primary funding source due to their ad hoc nature,” he said.

“While they help minimize carry costs and avoid unnecessary long-term issuance, more frequent use may add volatility to short-term rates and could crowd neardated T-bill supply, requiring careful calibration to avoid distorting money market conditions,” he added.

Reyes Tacandong & Co. Senior Adviser Jonathan L. Ravelas said CMBs could become a more regular part of the government’s toolkit because they are quick, cost-efficient, and responsive to market conditions. However, he warned that aggressive use could add volatility to short-term rates and push yields higher.

“CMBs help smooth liquidity, but if volumes pick up, they could nudge short-term yields higher and slightly crowd the front end of the curve,” he said. “Investors should watch issuance patterns closely — it’s a good signal of both fiscal timing and liquidity conditions.”