BTr watching rates for possible retail bond issue

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THE GOVERNMENT SAID it is looking at issuing retail Treasury bonds (RTB), in time for the passage of the 2019 national budget and amid speculation of a possible cut in bank reserve requirements, though the National Treasurer described the government’s current cash position as “very healthy.”

National Treasurer Rosalia V. De Leon told reporters on Monday that the Bureau of the Treasury (BTr) is considering an RTB issue, but added that the state has a “very healthy cash position” right now.

An issuance is “anticipated by the market given that we have P70 billion worth of maturities on Feb. 19. But for now, given that we still have a very strong cash position, that’s still something that we have to confirm whether to move ahead,” Ms. De Leon said when asked if the Treasury will offer an RTB.

“We have to take into consideration other things before we confirm that we’re going to have RTB sale because of that huge maturity.”

RTBs are issued to the general investing public. Before the public sale of the bonds, the instruments will be first offered to eligible financial institutions at the rate-setting auction.

Before proceeding with a retail bond sale, Ms. De Leon said that the BTr will look into the rate environment “in the next two to three weeks,” amid the expected approval of the 2019 national budget is set to be approved by President Rodrigo R. Duterte.

“We have to consider the requirements now that we have a budget going for 2019. At the same time, we’ll look into what the rate environment will be in the next two to three weeks. It (should) be a compelling scenario for us to move ahead with the RTB sale.”

On Friday, Congress finally ratified the proposed P3.757 trillion national budget for 2019, after the House of Representatives conducted a voice vote. At the Senate, 15 senators voted in favor of the ratification of the bicameral conference committee report, while five voted against.

The 2019 budget will then be forwarded to Malacañang for Mr. Duterte’s signature.

However, the bicameral conference committee also rejected the implementation of the cash-based budgeting system that was supposed to start this year, and backed a reversion to the old obligation-based system which allowed for more time for committed funds to be used.

“Also, there’s talk of a RR (reserve requirement) cut. So again, there is a flush of liquidity that can also ensue,” Ms. De Leon added.

With domestic inflation expected to return to below 4% at the end of the first quarter, ING Bank economist Nicholas Antonio T. Mapa said the Bangko Sentral ng Pilipinas (BSP) may slash the RR as early as this month in an off-cycle meeting.

“Meanwhile, reports circulated on Thursday that the Bureau of the Treasury was looking to issue a retail treasury bond in the near term, with an RR cut from the BSP one of the deciding factors for the timing of issuance,” Mr. Mapa added.

However, BSP Deputy Governor Diwa C. Guinigundo highlighted the need for “tight” liquidity conditions before further a reserve requirement cut can be considered.

Early last year, the central bank decided to trim the banks’ reserve requirements ratio by two percentage points to 18%, adding billions of pesos in liquidity to the market.

Asked for the tenor of the possible RTB sale, Ms. De Leon said that the Treasury will be “looking at the belly of the curve,” adding that it would not be on the long end of the yield curve.

In June, the government raised P121.765 billion worth of three-year RTBs with a coupon of 4.875%, higher than the initial volume of P30 billion.

However, this was lower than the P255.4 billion raised during the 20th RTB offer in November 2017.

Apart from the retail bond sale, the Treasury is also studying an offer of renminbi-denominated “panda” bonds in the second quarter as well as yen-denominated “samurai” bonds in the following quarter, in accordance with the government’s 12-month cycle of offshore bond offerings.

The state wants to borrow P1.189 trillion in 2019 to fund its spending plans. Of the total, 75% will be sourced domestically. — Karl Angelo N. Vidal