THE GOVERNMENT fully awarded the fresh three-year Treasury bonds (T-bond) it offered on Tuesday on the back of strong demand from the market due to additional liquidity from recent cuts to banks’ reserve requirement ratio (RRR).

At its first auction for the quarter, the Bureau of the Treasury (BTr) raised P20 billion as planned from its offer of fresh three-year bonds maturing on July 4, 2022.

Total tenders reached P65.911 billion, more than thrice the government’s offer.

The bonds, which carry a coupon rate of 4.75%, fetched an average rate of 4.803% at yesterday’s auction, 33.3 basis points (bp) lower than the average rate of 5.136% for the three-year T-bonds awarded last Aug. 29.

At the secondary market on Tuesday, the three-year bonds fetched a rate of 4.953%.

“We had a very healthy auction today given that more than the three times oversubscribed we received offers of P65 billion. See also na yung (There was a) decline in the rates given that first, last June 28, may (there was an) additional 50 bps [cut to banks’ reserves]…and then…there will be another cut end of July, the other 50 bps,” National Treasurer Rosalia V. De Leon told reporters after the auction on Tuesday.

“And of course the consensus on inflation for June would be around 2.9%, 2.8%. So given all these considerations, the bids came in much lower than even the secondaries and from there, it’s about 33 bps lower than the previous auction,” Ms. De Leon said.

After a 100-bp RRR cut across all banks last May 31, the Bangko Sentral ng Pilipinas (BSP) trimmed the reserve ratios of universal and commercial lenders and thrift banks by another 50 bps last Friday to 16.5% and 6.5%, respectively.

Another 50-bp reduction will be implemented on July 26 to finally bring the RRR of big banks to 16% and thrift banks to 6%, which completes the phased cuts the BSP announced in May.

Meanwhile, inflation likely eased anew last month due to declines in food and fuel prices following a surprise uptick in May, according to a BusinessWorld poll.

A poll among 12 economists yielded a 2.9% estimate median for June inflation, close to the ceiling of the BSP’s 2.2-3.0% range for the same month. If realized, this would match December 2017’s pace and would be the slowest since the 2.6% clocked in August the same year. It also compares to actual inflation of 3.2% in May and 5.2% in June last year.

The Philippine Statistics Authority is scheduled to report official June inflation data on July 5.

“The market continued to show preference on short-end sector of the curve, given the sustained perspective for moderating inflation. Dealers and investors may also be putting their excess liquidity to good use, thanks to the second tranche of the RRR cut which took effect last June 28,” Robinsons Bank Corp. peso sovereign debt trader Kevin S. Palma said.

The government plans to borrow P230 billion from the local market from July to September, broken down into P60 billion in Treasury bills and P140 billion in T-bonds.

Meanwhile, Ms. De Leon said the government is still looking to sell as much as $1 billion in yen-denominated bonds given strong appetite from Japanese investors.

“We also saw strong appetite of Japanese investors for the issue because there would really be a strong pickup coming from where current benchmarks right now in the samurai market. In terms of the schedule, we still have to do several like market-sounding,” Ms. De Leon said.

“They are very bullish on the Philippines coming from the S&P [Global Ratings] upgrade, obviously, and they would also see the liquidity in the market… If we are going to do more frequent issuances, then we can also be in the index for samurai bonds,” Ms. De Leon added, noting that the country has to maintain its presence in the yen bond market.

Last April, S&P Global Ratings raised the Philippines’ credit rating by one notch to “BBB+” from “BBB” with a stable outlook, citing above-average growth and strong external and fiscal position which have boosted the country’s economic profile.

Ms. De Leon said the government has to assess developments in the samurai market to determine whether or not to proceed with the bond sale.

“We have to watch market developments, benchmark rates, also from our arrangers. We have to find out the feedback from the investors that we saw during the NDR (non-deal road show).”

The government is looking to raise P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product. Of the amount, 75% will be sourced domestically while the balance will be from foreign creditors. — R.J.N. Ignacio