THE market’s rate cut bets helped in the accouchement of low yields of Treasury bonds (T-bonds) in Tuesday’s auction, allowing the Bureau of the Treasury (BTr) to raise P30 billion.
With a remaining term of seven years and seven months, the government securities’ average yield settled at 5.973 percent. This is lower by 2.1 basis points (bps) than the comparable 7-year PHP Bloomberg Valuation Service Reference Rates (PHP BVAL) yield of 5.994 percent.
The T-bond average auction yield also declined by 27.6 bps from an earlier rate of 6.249 percent set during the sale of the same tenor on January 14, 2025.
Investors asking yields were as low as 5.900 percent to a high of 5.984 percent. The coupon rate for the debt papers was set at 6.750 percent.
The auction was 2.3 times oversubscribed, with total bids reaching P67.61 billion while P37.61 billion was rejected.
According to Michael L. Ricafort, chief economist at the Rizal Commercial Banking Corp. (RCBC), the downtrend in the average yield of T-bonds was caused by market expectations of a 25-basis point (bps) key policy rate cut this week, .
Central bank Governor Eli M. Remolona Jr. signaled that a rate cut is on the table in the meeting of the Monetary Board (MB) this February 13, as the economy continues to underperform.
Interest rates could be reduced by 50-bps this year to bring down interest rates to 5.25 percent. The second 25-bps cut is expected in the second half of the year.
Citi Economist for the Philippines Nalin Chutchotitham said in a briefing paper on February 6 they believe the Bangko Sentral ng Pilipinas (BSP) is set on Thursday for a 25bps policy rate cut, bringing it to 5.50 percent.
“Today’s inflation [is] well-within the policy target band while [the] 2024 GDP [gross domestic product] growth turned out weaker than expected at 5.6 percent,” Chutchotitham wrote. He noted that Remolona commented that the economy is “growing a bit below capacity” after, in line with the BSP’s “Q4 2024 Monetary Policy Report,” which assessed that the output gap would remain negative in 2025 and close by 2026.
“We continue to see that the real policy rate still appears fairly tight by historical standard, even if considering the BSP’s own risk-adjusted inflation forecasts at 3.4 percent in 2025 and 3.7 percent in 2026,” as at the December 2024 meeting, Chutchotitham added.
Meanwhile, Ricafort noted that global crude oil prices lingered among 1-month lows and among 3-year lows recently, which “could support benign local inflation and support monetary easing in terms of cuts in local policy rates and reserve requirement ratio in the coming months.”
The decline in yields also aligns with the recent easing in US Treasury yields, as the 7-year US Treasury yield slipped to 1-month lows at 4.42 percent, down from the peak of 4.72 percent on January 13, 2025, added the RCBC executive.
This February, the Treasury aims to raise a total of P115 billion by auctioning T-bonds and P22 billion from Treasury bills. The national government aims to borrow P2.545 trillion, following an 80:20 borrowing mix in favor of domestic sources amounting to P2.037 trillion.
The government’s outstanding debt reached P16.05 trillion as of end-December 2024.
Image credits: Walter Eric Sy | Dreamstime.com
