Short-term IOUs draw high demand
The Bureau of the Treasury (BTr) upsized the amount it awarded at yesterday Treasury bills auction amid significant demand for the short-term IOUs, while rates fell across all tenors.
The auction was more than four times oversubscribed and total bids reached P93.9 billion, with the market expecting a policy rate cut, the BTr said.
The BTr awarded P27.6 billion, much more than the P22 billion programmed offering, while it increased the accepted amounts for the three-month and six-month securities.
The 91-, 182- and 364-day treasury bills fetched average rates of 5.165 percent, 5.503 percent and 5.84 percent, respectively.
The rate for the 91-day IOU was 42.3 basis points (bps) below the previous average of 5.588 percent; the 182-day securities went 13.5 bps down from the previous yield of 5.638 percent, while the one-year paper slid 5.1 bps from the previous week’s 5.891 percent.
In comparison, the Bloomberg Valuation (BVAL) Service rates were 5.497 percent for the three-month tenor, 5.627 percent for the six-month tenor and 5.895 percent for the one-year tenor.
The BTr awarded P9.8 billion each of the first two tenors instead of the P7 billion initial offer, while it fully awarded the P8 billion program for the 364-day treasury bills.
John Paolo Rivera, senior research fellow at the Philippine Institute for Development Studies, told Malaya Business Insight that expectations the Bangko Sentral ng Pilipinas may keep its current policy rates or adopt a gradual easing this year could be prompting investors to lock in short-term gains now.
He pointed out that amid global and local uncertainties, investors often gravitate toward safer, shorter-term instruments like the T-bills when market participants remain cautious about inflation trends, geopolitical risks or economic growth prospects.
“Strong demand suggests that the domestic financial system has sufficient liquidity. Banks and institutional investors may be seeking low-risk investments in which to park excess cash, especially if loan growth or higher-yielding investment opportunities are limited,” Rivera said.
Rivera said that BTr’s decision to raise the awards reflected its confidence in meeting financing requirements at favorable terms while taking advantage of strong market demand.
Sustained demand and lower rates for T-bills are expected to continue in the near term, driven by ample liquidity in the financial system, particularly from banks; ongoing investor caution about global and local economic conditions, leading to a preference for shorter maturities; and an expectation that inflation will remain stable, which keeps rates for government securities attractive,” Rivera said.
For now, T-bills remain a reliable, attractive investment for many market players,” he added.
Michael Enriquez, president of Sun Life Investment Management and Trust Corp., said there has been stronger demand for the short-term IOUs “as investors have been shortening duration as long-term rates have been continuously increasing.”
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., pointed out that treasury bill average auction yields declined for the third straight week, on possible local policy rate cut as early as the first BSP rate-setting meeting in 2025 on February 20, as earlier signaled by most local monetary officials.
“T-bill average auction yields also eased after the initial implementation of the maximum suggested retail price of imported rice on January 20, 2025 and the declaration of a food security emergency in January 2025 that could all help further reduce local rice prices, which account for about 9 percent of the inflation basket, and also support benign inflation, thereby could support further local policy rate cuts that could match future Fed rate cuts,” Ricafort said.
“Ironically, long-term PHP BVAL yields are mostly among six-month highs, while short-term PHP BVAL yields declined to the lowest in two to three months, thereby resulting in a steeper/positively sloping yield curve, with short-term tenors as safer haven amid volatile long-tenor tenors that are awaited to top out/stabilize,” he said.