The government of the Philippines has successfully procured ₱25 billion from domestic lenders by issuing short-term Treasury bills (T-bills), as investors aimed to secure relatively elevated interest rates prior to an expected decrease in key borrowing costs by the Bangko Sentral ng Pilipinas (BSP) in June.

In an auction held on May 19, the Bureau of the Treasury (BTr) fully allocated its ₱25 billion offering of T-bills.

The total bids received amounted to ₱78.4 billion, indicating a demand more than three times the offered amount.

This week's bidding figures surpassed the ₱70.3 billion in tenders recorded in the previous auction on May 13.

The government fully awarded the ₱8 billion auction for 91-day T-bills, receiving total bids of ₱24.1 billion.

The average yield for this short-term security was 5.515 percent, reflecting a decrease of 3.1 basis points from the preceding week’s rate of 5.546 percent.

For 182-day T-bills, the BTr successfully raised ₱8 billion, again fully awarding the proposed amount with total bids reaching ₱34.3 billion.

The average yield for this instrument was 5.612 percent, down by 3.8 basis points from the previous week's 5.65 percent.

Additionally, the BTr borrowed ₱9 billion through 364-day IOUs, with demand totaling ₱20 billion.

The average yield for these longer-term securities increased by 4.7 basis points to 5.702 percent from 5.655 percent in the last auction.

Prior to this auction, the PHP Bloomberg Valuation (PHP BVAL) Reference Rates indicated that the 91-day, 182-day, and 364-day T-bills were quoted at 5.513 percent, 5.626 percent, and 5.7 percent, respectively.

Notably, yields on the three-month and one-year government securities exceeded this official benchmark, while the six-month T-bills were quoted below it.

All T-bill yields surpassed the central bank's key policy rate, which currently stands at 5.5 percent.

The chief economist at Rizal Commercial Banking Corp. (RCBC), Michael Ricafort, remarked that the increasing demand for T-bills may suggest investors are seeking to lock in higher yields ahead of a potential 25 basis point rate cut by BSP, anticipated as early as June 19.

This expectation is bolstered by indications from BSP Governor Eli M. Remolona Jr. regarding potential additional quarter-point rate cuts throughout 2025, due to easing inflation that provides more flexibility for monetary policy adjustments.

The Philippine government primarily relies on local borrowing through treasury bills and bonds rather than foreign sources of funding.

This method helps mitigate foreign exchange risks and capitalizes on domestic banks, which are presently well-capitalized.

As of the first quarter of 2023, the national government's outstanding debt stood at 62 percent of the country’s gross domestic product (GDP), marking its highest level in two years and rising from 60.7 percent at the close of 2024. Of this, domestic debt accounted for 42.3 percent of GDP, while foreign debt made up 19.7 percent.

This increase in borrowing is in support of the Marcos administration's augmented spending program, leading to a rise in the debt-to-GDP ratio beyond the global benchmark.