T-bond yield eases ahead of expected rate cuts
Strong demand pushed down Treasury bond (T-bond) yield on Tuesday’s auction as lenders locked in rates ahead of further interest rate cuts expected to be delivered by the local central bank this year.
Auction results showed that the Bureau of the Treasury made a full award of P15 billion in reissued T-bonds, which have a remaining life of six years and nine months.
The debt paper fetched an average rate of 5.690 percent, lower than the average rate of 6.128 percent on the comparable seven-year debt note issued on Aug. 13. This was also cheaper than the 5.7-percent rate quoted for the same tenor in the secondary market as of Oct. 14.
The total bids amounted to P40.88 billion, exceeding the size of the original offering by nearly three times.
“Overall demand for government bonds remains prevalent, which could support local bonds in the short-term [due to] favorable inflation outlook,” Dino Angelo Aquino, vice-president and head of fixed income of Security Bank Corp., told Inquirer.
With inflation back to the target range, the local central bank is expected to continue its monetary easing through next year, Aquino added that a 25-basis-points (bps) policy cut by the Bangko Sentral ng Pilipinas (BSP) has been priced in for some time.
At its policy meeting today, the Monetary Board is expected to slash the benchmark interest rate by at least 25 bps as consumer prices had eased to 1.9 percent in September, according to Inquirer’s poll of 10 economists conducted last week. However, economists believe that the BSP would likely proceed cautiously, avoiding significant rate cuts despite having some flexibility.
The country’s inflation rate in September marked its slowest pace in over four years and was below the BSP’s 2 to 2.8 percent forecast for the month.
Likewise, BSP Governor Eli Remolona Jr. earlier said the Monetary Board could reduce interest rates twice more within this year.
The government aims to borrow P145 billion from the local market in October, of which P45 billion will come from T-bonds and P100 billion via Treasury bills.
The government borrows from both local and foreign sources to help finance its budget deficit, which is capped at P1.48 trillion, or 5.6 percent of the total economic output this year.
