By Derco Rosal
Short-term government debt interest rates increased anew for the fifth consecutive week due to strong investor demand, driven by expectations of future rate cuts, US inflation concerns, and a possible Trump win.
A Trump win in the US elections is seen to result in an increase in US Treasury yields and further strengthen the dollar.
At Monday’s auction, Nov. 4, the Bureau of the Treasury (BTr) raised P20 billion from Treasury bills (T-bills), attracting total bids of P69.87 billion—over three times the amount available.
This week’s total bids increased by over 10 billion from last week’s P56.046 billion, sustaining the previous increase.
The Treasury awarded a total P6.5 billion for the 91-day T-bills as planned, with total tenders for this maturity reaching P19.16 billion.
Rising slightly by 1.9 basis points (bps), the three-month T-bills were priced at an average rate of 5.605 percent, from 5.586 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 P26.07 billion.
Following last week’s lag, the average rate for the six-month T-bill further declined to 5.735 percent, from last week’s 5.752 percent rate.
Lastly, the Treasury borrowed the planned P7 billion through the 364-day debt papers, with demand for this maturity reaching P24.65 billion.
Like last week, the average rate for the one-year T-bill inched up by 3.5 bps, from 5.751percent in the previous auction to 5.786 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 5.327 percent, 5.796 percent, and 5.801 percent, respectively.
Only the three-month and one-year averages continued to be above BVAL rates, while the six-month average fell again slightly below from last week’s rate.
According to Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), this strong demand for the 182-day T-bill led to a 5.735-percent yield drop as investors seek to lock in higher returns amid expectations of future US Federal Reserve and local rate cuts.
Excluding external factors, interest rates for short-term debt rose after the recent cut in banks’ reserve requirement ratio (RRR).
As for global influences, Ricafort said market expectations of rising inflation and higher US Treasury yields due to a possible Trump victory in the US election have also contributed to a stronger US dollar, affecting the peso exchange rate and potentially increasing import prices.
However, local inflation is expected to stay within the Bangko Sentral ng Pilipinas’ (BSP) target band of two to four percent for the rest of the year, supported by lower rice tariffs, falling world rice prices, and low global oil prices, Ricafort said.
These conditions may allow for potential rate cuts by the BSP if the easing inflation trend continues, he added.