T-bill yields ease to 5% levels before Fed meet

By Aaron Michael C. Sy, Reporter

THE GOVERNMENT fully awarded Treasury bills (T-bills) at an auction on Monday as rates declined to below 6% amid market expectations that the US Federal Reserve would start its easing cycle this week.

The Bureau of the Treasury (BTr) raised P20 billion from debt, with bids reaching P77.899 billion, or more than thrice the amount on offer.

The demand was higher than the P64.515 billion in tenders at the Sept. 10 auction, where the government raised the volume.

“Investors are growing confident that yields are on a downward path,” a trader said in a text message.

The BTr borrowed P6.5 billion in 91-day T-bills as tenders for the tenor reached P28.624 billion. The three-month debt was quoted at an average rate of 5.743%, 9.7 basis points (bps) lower than last week. Accepted yields were at 5.72% to 5.774%.

The government also fully awarded P6.5-billion in 182-day T-bills as bids for the tenor reached P24.71 billion. The average rate for the six-month debt was 5.94%, 4 bps lower than last week. Accepted rates were 5.9% to 5.965%

The Treasury likewise raised P7 billion from 364-day T-bills as demand for the tenor reached P24.565 billion. The average rate of the one-year debt fell by 5.6 bps to 5.973% from last week. Accepted rates were 5.95% to 5.975%.

At the secondary market before the auction, the 91-, 182- and 364-day T-bills were quoted at 5.8616%, 5.9899% and 6.0118%, respectively, based on PHP Bloomberg Valuation Service (BVAL) Reference Rates data provided by the Treasury.

The mostly lower T-bill yields were due to market expectations of a 50-bp rate cut by the Fed at its Sept. 17-18 meeting, Michael L. Ricafort, chief economist Rizal Commercial Banking Corp., said in a Viber message.

The Federal Reserve will lower interest rates by 25 bps at each of the US central bank’s three remaining policy meetings this year, according to most economists in a Reuters poll that found only nine of 101 expected a half-percentage-point cut next week.

With inflation approaching the Fed’s 2% target and some signs of an economic slowdown, policy makers have made it clear “the time has come” to start reducing the federal fund rate, which has been held at 5.25%-5.5% since July 2023, Reuters reported.

After the release on Friday of a mixed job report for August, interest rate futures contracts briefly priced in more than a 50% chance of a half-percentage-point cut next week, but the chances have narrowed to about one in four. Rate markets are still pricing in more than 100 bps of cuts this year.

A strong majority of economists in the Sept. 6-10 poll, 92 of 101, expect a 25-bp cut when the US central bank’s Federal Open Market Committee (FOMC) concludes its two-day meeting next week.

Fifty-four of 71 economists polled said a 50-bp cut at any of the Fed’s remaining meetings this year was unlikely, including five who said it was very unlikely.

On Tuesday, the BTr will offer P30 billion in reissued 10-year Treasury bonds (T-bonds) with a remaining life of nine years and four months.

The Treasury seeks to raise P195 billion from the domestic market this month — P80 billion through T-bills and P115 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.48 trillion or 5.6% of economic output this year.