Surprise drop in short-term yields as investors bet on BSP easing
Expectations of further policy easing by the Bangko Sentral ng Pilipinas (BSP) took center stage in the first Bureau of the Treasury auction of the year, as investors snapped up government debt and pushed yields lower across the board.
At Monday's auction, January 6, the Treasury bureau successfully raised P22 billion through Treasury bills (T-bills). Total bids reached P70.98 billion—more than three times the amount offered.
This week's total bids soared above the P46.74 billion recorded in the previous T-bills auction on Dec. 16, 2024.
The Treasury awarded the full P7 billion for the 91-day T-bills, as total tenders for this maturity reached P25.02 billion.
The three-month T-bills were priced at an average rate of 5.782 percent, 3.6 basis points lower than the 5.818 percent from the previous auction in December.
The government also raised P7 billion as planned in 182-day debt papers, with bids for this tenor reaching P23.85 billion.
The average rate for the six-month T-bill dropped to 5.911 percent, decreasing by 6.4 basis points from the last auction's rate of 5.975 percent.
Finally, the Treasury successfully borrowed the planned P8 billion through 364-day debt papers, with demand for this maturity reaching P22.11 billion.
The average rate for the one-year T-bill fell by 4.6 basis points, from 5.977 percent in the previous auction to 5.931 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 5.829 percent, 5.973 percent, and 6.049 percent, respectively.
All short-term government securities were lower than this official benchmark.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), explained that the slight decline in interest rates followed the expected 25 basis-point rate cuts by the U.S. Federal Reserve and BSP last month.
Ricafort noted that the interest rates are currently close to the central bank's latest policy rate of 5.75 percent.
BSP Governor Eli M. Remolona Jr. recently signaled the possibility of a further rate cut at the Monetary Board's (MB) first meeting of 2025. He is adopting a cautious stance on easing while keeping rates restrictive to support the peso.
Remolona said that a total reduction of 100 basis points might be "too much," but stressed the need for gradual rate cuts. He emphasized that zero cuts would be insufficient.