T-bill yields may decline further with BSP, Fed likely to cut rates

YIELDS on the Treasury bills (T-bills) to be offered this week could end lower ahead of expected rate cuts from both the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP).

The Bureau of the Treasury (BTr) will auction off P22 billion in T-bills on Tuesday or P7 billion in 91-day securities and P7.5 billion each in 182- and 364-day papers.

The T-bills could fetch lower yields in line with the week-on-week decline seen at the secondary market as slower-than-expected November inflation bolstered expectations of a fifth straight easing move by the BSP this week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“Banking books’ year-end profit taking is still heavily weighing on the market and we expect same sentiment heading to the Monetary Board meet, where a 25-basis-point (bp) cut is already priced in,” a trader said in an e-mail on Friday.

At the secondary market on Friday, yields on the 91-, 182-, and 364-day T-bills went down by 0.88 bp, 0.09 bp, and 1.91 bps to end at 4.8732%, 4.999%, and 5.052%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data as of Dec. 5 published on the Philippine Dealing System’s website.

Philippine headline inflation eased to 1.5% last month from 1.7% in October and 2.5% in November 2024, the Philippine Statistics Authority reported on Friday.

This was within the BSP’s 1.101.9% forecast for the month, but was a shade below the 1.6% median estimate in a BusinessWorld poll of 15 analysts.

The November clip brought the 11-month average to 1.6%, below the central bank’s 1.7% full-year forecast and 2-4% annual goal.

Analysts said the below-target inflation gives the BSP ample room to ease its policy settings further, with another cut likely at the Monetary Board’s meeting on Thursday (Dec. 11).

A separate BusinessWorld poll showed that 17 of 18 analysts expect the Philippine central bank to deliver a fifth straight 25-bp reduction at this week’s meeting to bring the policy rate to 4.5%, its lowest since September 2022.

Meanwhile, one analyst said the Monetary Board could announce a jumbo 50-bp cut.

The BSP has cut benchmark borrowing costs by a total of 175 bps since it kicked off its easing cycle in August 2024. For this year alone, it has trimmed rates by 100 bps through four consecutive 25-bp cuts since April.

BSP Governor Eli M. Remolona, Jr. said last week that weakening growth prospects raises the chances of an easing move on Thursday, adding that they expect Philippine gross domestic product (GDP) to expand by just 4-5% this year, below the 5.5-6.5% target.

He earlier said that they could continue cutting rates until next year to help provide economic stimulus as a graft scandal involving anomalous flood control and infrastructure projects has caused a slowdown in public spending and dampened consumer and investor confidence.

In the third quarter, Philippine GDP grew by an over four-year low of 4%, bringing the nine-month average to 5%.

Mr. Ricafort added that the Fed could also deliver a second straight rate cut at their Dec. 9-10 meeting, which would be an added reason for the BSP to ease further.

An interest rate cut is all but priced in at the Fed’s meeting this week, but a divided committee makes for a wild card, Reuters reported.

Analysts expect a “hawkish cut,” where the language of the statement, median forecasts and Chair Jerome H. Powell’s press conference point to a higher bar on further rate reduction. 

That could support the dollar if it pushes investors to dial back expectations for two or three rate cuts next year.

Markets imply around an 85% chance of a quarter-point reduction in the 3.75% to 4% funds rate, so a steady decision would be a seismic shock. A Reuters poll of 108 analysts found only 19 tipping no change, and the rest a cut.

The Federal Open Market Committee has not had three or more dissents at a meeting since 2019, and that has happened just nine times since 1990.

Last week, the BTr raised P25 billion via the T-bills, higher than the P22-billion plan, as the offer was almost four times oversubscribed, with total tenders reaching P85.26 billion.

The government raised P7 billion as planned from the 91-day T-bills as demand reached P29.815 billion. The three-month paper fetched an average rate of 4.812%, down by 3.7 bps from the previous auction. Yields accepted were from 4.770% to 4.844%.

Meanwhile, the Treasury increased its award of 182-day debt to P10.5 billion from the P7.5-billion plan as bids reached P29.75 billion. The average rate of the six-month T-bill went down by 4 bps to 4.93% from the previous week. Tenders awarded carried yields from 4.89% to 4.965%.

Lastly, the BTr sold the programmed P7.5 billion in 364-day securities as bids for the tenor hit P25.695 billion. The one-year T-bill’s average yield was at 5.011%, inching up by 0.8 bp. Accepted rates were from 4.998% to 5.027%.

The Treasury wants to raise P101 billion from the domestic market this month or P66 billion through T-bills and P35 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.56 trillion or 5.5% of gross domestic product this year. — A.M.C. Sy with Reuters