T-bill, bond rates likely to drop

RATES OF government securities on offer this week may slip after the central bank said it could cut banks’ reserve requirements further.

The Bureau of the Treasury (BTr) will auction off P15 billion in Treasury bills (T-bills) on Monday, broken down into P5 billion each in 91-, 182- and 364-day debt papers.

On Tuesday, the BTr will offer P35 billion in fresh seven-year Treasury bonds (T-bonds).

A bond trader said the average yields on the T-bills could move sideways or drop by around 5 basis points (bps) from the levels fetched a week ago.

Meanwhile, for the seven-year bonds, the trader expects the tenor to fetch a coupon between 3.625% and 3.75%, while a second trader gave a narrower forecast range of 3.625-3.73%.

The first trader said the market will price in comments from the Bangko Sentral ng Pilipinas (BSP) saying it is open to another cut in banks’ reserve requirement ratios (RRR).

The BSP on Wednesday said further adjustments to the RRR “remain on the table,” Bloomberg News reported.

The reserve requirement for big banks is currently at 12%, still one of the highest in the region. The central bank last cut big banks’ RRR in April 2020 with a 200-bp reduction.

In July 2020, it likewise slashed the reserve requirements of thrift and rural banks by 100 bps to 3% and 2%, respectively.   

Meanwhile, July inflation data released last week would also be a factor in the upcoming auctions, the first trader added, as well as the second-quarter gross domestic product (GDP) report, which is due to come out on Tuesday.

Headline inflation stood at 4% last month, slower than the 4.1% print in June but still faster than the 2.7% recorded in July 2020.

This marked the slowest inflation pace in seven months or since the 3.5% logged in December 2020. It was also the first time since December that inflation settled within the BSP’s 2-4% target for the year.

At the secondary market on Friday, the rates of the 91-, 182- and 364-day T-bills closed at 1.111%, 1.396% and 1.642%, respectively, while the seven-year tenor was quoted at 3.436%, based on the PHL Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

The BTr made a full award of the T-bills it offered last week after rates fetched ended mixed and total tenders reached P50.76 billion.

Broken down, it borrowed P5 billion as planned via the 91-day papers at an average rate of 1.053%, inching up from 1.05% in the July 26 auction.

The government also raised P5 billion as programmed from the 182-day T-bills. The six-month debt fetched an average yield of 1.401%, lower than the 1.407% seen previously.

Lastly, the BTr made a full P5-billion award of the 364-day securities it offered at an average rate of 1.632%, down from 1.638% the week prior.

Meanwhile, the last time the Treasury offered seven-year bonds was on July 27 when it raised P35 billion as planned via reissued papers with a remaining life of six years and seven months at an average rate of 3.651%, up by 7.5 bps from the 3.576% quoted for the tenor at the July 6 auction. The offer attracted bids worth P69.758 billion.

The Treasury is looking to raise P200 billion from the local market this month: P60 billion via weekly offers of T-bills and P140 billion from weekly auctions of T-bonds.

The government wants to borrow P3 trillion from domestic and external sources this year to help fund a budget deficit seen to hit 9.3% of GDP. — B.M. Laforga