THE FIRST DAY of sale of the three-year retail Treasury bonds (RTB) bared strong demand for the debt papers amid ample liquidity in the market.
In the first day of the debt sale on Wednesday, the Bureau of the Treasury (BTr) raised P66 billion in three-year RTBs — against a total tender of P92.8 billion from banks and other financial institutions — with a 4.875% coupon.
The strong demand prompted the Treasury to increase its offer from P30 billion initially.
The coupon compared to the 4.25% fetched for the three-year RTBs offered in March last year, the 4.625% of the five-year papers sold in November 2017 and the 4.7398% at the close of the secondary market yesterday.
The government raised P181 billion and P255.4 billion, respectively, in those two exercises last year.
The RTBs are now offered to the general investing public through banks for minimum denominations of P5,000 until June 8. The latest debt papers, which will be issued on June 13, will mature in 2021.
Following the price-setting auction, National Treasurer Rosalia V. De Leon said that the Treasury expects “good reception” from investors.
“I think we will have a good reception considering the liquidity in the system right now,” Ms. De Leon told reporters on Wednesday.
The RTB offering was announced a day after the Bangko Sentral ng Pilipinas (BSP) said it will trim the reserve requirement ratio for commercial and universal banks by another percentage point to 18% effective June 1. The move is seen to unlock an estimated P90 billion worth of idle funds in the financial system.
The latest RTB sale also comes at a time of extra money supply expected in local markets following the maturity of around P130 billion worth of previously issued debt notes early last week.
“We see that there would be a very strong liquidity that’s available [for] the RTB,” Ms. De Leon explained.
Asked on the higher coupon commanded by the latest RTBs, she explained: “The curve has really moved up so there has been an upward shift in the curve of the Treasury,” citing “confluence” of factors like the BSP’s rate hike earlier this month — the first in nearly four years — as well as rising inflation. The BSP’s Monetary Board raised benchmark interest rates by 25 basis points in its May review to 3.75% for overnight lending, 3.25% for the overnight reverse repurchase rate and 2.75% for overnight deposit.
Moreover, inflation has been steadily picking up this year, breaching the 2-4% full-year target for the second straight month at 4.5% in April, contributing to a year-to-date 4.1% pace. Monetary authorities expect the overall increase in prices of widely used goods to peak next quarter before easing to within expectations in 2019.
“We have always echoed the thought that the inflation pressures are transitory and that inflation figure will eventually return within the government’s target range,” Ms. De Leon said in a statement.
The National Treasurer added that the objective of the RTB is “to be able to bring out the individuals more to participate in this structure.”
“We are delighted that more and more Filipinos are getting into the habit of investing as well as in taking part in the funding of the national government,” Ms. De Leon added in the statement.
“RTBs are a viable way for Filipinos to achieve their financial goals and prepare for the future, while helping the Philippine government in its financing needs.”
The bonds carry low risk for small investors, the Treasury said, enabling the general public to earn a fixed interest based on prevailing market rates.
The government tapped Land Bank of the Philippines to be the lead issue manager of the 21st RTB sale, while Development Bank of the Philippines, BDO Capital & Investment Corp., BPI Capital Corp., Metropolitan Bank & Trust Co. and SB Capital Investment Corp. will serve as joint issue managers. The RTBs will be available through any of 16 selling agents (list available on http://www.treasury.gov.ph/?p=19635).
A bond trader said by phone that the coupon was “in line with expectations because market expected between 4.75% to 5%… The BTr said that most likely it will not shoot beyond the P255 billion… earned the previous RTB. Possibly, they might earn around P100 billion for this issuance.”
Ms. De Leon said the Treasury might proceed with the “samurai” bonds sale next, adding that it was waiting for “a good window and a very compelling need to borrow.”
“As long as we see good collections from [Bureau of Internal Revenue] and [Bureau of Customs]… then we don’t even need to borrow.” — Karl Angelo N. Vidal

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