By DERCO ROSAL
A weaker peso, coupled with higher import prices, cautious US Federal Reserve signals, and the recent reserve ratio cut, pushed short-term government debt interest rates higher for four consecutive weeks.
At Monday’s auction, Oct 28, the Bureau of the Treasury (BTr) raised P20 billion from Treasury bills (T-bills), attracting total bids of P56.046 billion—nearly three times the amount available.
This week’s total bids increased slightly from last week’s P55.1 billion, sustaining the previous increase.
The Treasury awarded the total P6.5 billion for the 91-day T-bills as planned, with total tenders for this maturity reaching P14.52 billion.
Rising slightly by 12.3 basis points (bps), the three-month T-bills were priced at an average rate of 5.586 percent, from 5.463 percent of the previous week’s auction.
As for the 182-day securities, the government raised P6.5 billion as planned, with bids for this tenor reaching P20.17 billion.
Like last week, the average rate for the six-month T-bill also rose anew to 5.752 percent, from last week’s 5.731 percent rate.
Lastly, the Treasury borrowed the planned P7 billion through the 364-day debt papers, with demand for this maturity reaching P21.36 billion.
Similarly, the average rate for the one-year T-bill inched up by 6.5 bps, from 5.686 percent in the previous auction to 5.751 percent.
Prior to Monday's auction, the PHP Bloomberg Valuation (PHP BVAL) Reference Rates showed that the 91-, 182- and 364-day T-bills were quoted at 5.198 percent, 5.801 percent, and 5.729 percent, respectively.
This week’s average rates for all short-term debts were notably higher than those of previous week.
However, only the three-month and one-year averages are above BVAL rates, while the six-month average falls slightly below, lagging by 4.9 bps.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC) said the average yields on T-bills went up because the exchange rate between the U.S. dollar and the Philippine peso hit a nearly three-month high at 58.30.
This dollar appreciation may result in higher import prices and inflation, with analysts warning that a possible Donald Trump victory in the U.S. election could exacerbate these issues, Ricafort explained.
Recent positive U.S. economic data has prompted some Federal Reserve officials to signal a more cautious approach to future rate cuts.
This more cautious stance is contributing to the greenback gaining value against other currencies and causing the U.S. Treasury yields to rise, Ricafot noted.
As a result, futures markets are now expecting fewer interest rate cuts in 2024 than in the previous month.
Offsetting these are global crude oil prices which dropped to near one-month lows after Israel’s targeted airstrikes in Iran, which focused on military sites but avoided oil and nuclear facilities, in response to recent missile attacks from Iran.
Also, the recent cut in banks' reserve requirement ratio (RRR) released P400 billion into the banking system, enhancing lending and investment flexibility.
However, this liquidity, Ricafort said, may be offset by the Bangko Sentral ng Pilipinas’ (BSP) weekly term deposit facility and securities auctions.