Treasury bill rates to end sideways on rate cut bets

RATES OF Treasury bills (T-bills) on offer this week will likely move sideways on expectations that strong bids will continue and of a policy rate cut by the central bank.

The Bureau of the Treasury (BTr) will offer P20 billion in Tbills on Monday, broken down into P5 billion each for the 91- and 182-day papers and P10 billion in 364-day instruments.

On Tuesday, the BTr is set to borrow P15 billion via the 35-day T-bills.

ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said strong demand for the shortterm papers will continue and will push rates slightly lower than yields fetched in the previous auctions.

Mr. Liboro said the market already considered the possibility that Bangko Sentral ng Pilipinas (BSP) Monetary Board will cut benchmark interest rates anew.

“We expect the auctions to continue to be well-bid with demand potentially driving yields on the front-end marginally lower. At current market levels, we believe that an additional 25bp (basis point) cut from the BSP (down to 2.5%) has already been fully priced in,” he said via e-mail on Friday.

Noel S. Reyes, first vice-president and chief investment officer of the Asset Management Group at Security Bank Corp., said rates will also move sideways for shorter tenors and marginally lower for the one-year tenor.

“I think we could see sideways movement on the award rates for the 35-day to 182-day tenors. The 364-day may come out slightly lower still as the gap between this and 6 months is still wide vs. its mean differential. We expect these marginal moves as the yield curve has come off more on the shorter end than the longer dates already,” Mr. Reyes said in a text message on Friday.

The BTr raised P24 billion in T-bills last week, higher than the programmed P20 billion, as demand soared and rates declined across-the-board.

Broken down, it borrowed P5 billion each via three-month and six-month papers at lower average rates of 2.058% and 2.114%, respectively. It hiked the award of one-year securities to P14 billion from its P10-billion plan on strong bids. The one-year papers also yielded a lower average rate of 2.508%.

Meanwhile, the last time the Treasury offered 35-day papers was on May 19 where it raised P15 billion as planned at an average rate of 2.024%, down from 2.042% previously.

“The yield curve is now extremely flat and we feel the frontend (1- to 3-year) now offers the best risk-reward proposition, despite being fairly valued already,” Mr. Liboro said.

“While we believe that there is the potential for a retracement on the longer-tenor securities, liquidity is likely to keep short-tenor securities well-bid given expectations of BSP action,” he added.

The BSP Monetary Board has brought down interest rates to record lows after delivering a total of 125 bps in reductions so far this year to follow the 75 bps in cuts in 2019.

The next rate-setting meeting for the year is scheduled on June 25.

The government plans to borrow P170 billion from the local market in June: P110 billion via weekly T-bill auctions and the remaining P60 billion in Treasury bonds to be offered fortnightly. —