THE GOVERNMENT made a partial award of the Treasury bills (T-bill) it auctioned off yesterday as investors shied away from the longest tenor, awaiting monetary policy decisions in the United States and at home.

The Bureau of the Treasury (BTr) on Monday raised just P12.983 billion out of the P15 billion it wanted to borrow via the T-bills even as it received bids totalling P35.1 billion, more than twice the program.

Broken down, the BTr awarded P4 billion as planned via the 91-day T-bills with tenders amounting to P11.9 billion. The papers fetched an average yield of 3.037%, 11.2 basis points (bp) lower than the 3.149% quoted at the Sept. 2 auction.

The Treasury also borrowed P5 billion as programmed through the 182-day papers, with the tenor attracting bids worth P12.75 billion. The six-month securities fetched an average rate of 3.42%, a tad lower than the 3.429% seen in the previous offering.

Meanwhile, the government only raised P3.983 billion via the 364-day T-bills out of a P6-billion program and even as total bids reached P10.403 billion. The yield on the one-year tenor averaged at 3.666%, inching up 0.7 bp from the previous’ 3.659%.

Had the Treasury made a full award, the one-year securities would have fetched an average rate of 3.7%

At the secondary market, three- and six-month papers were quoted at 3.278% and 3.516%, respectively, while the one-year securities fetched a yield of 3.699%, based on the PHP Bloomberg Valuation Service Reference Rates.

National Treasurer Rosalia V. De Leon said Monday’s auction saw “very healthy” participation with the offer more than twice oversubscribed, with rate continuing to decline as the market awaits the Bangko Sentral ng Pilipinas’ (BSP) policy review next week, where it is expected to cut benchmark interest rates and big banks’ reserve requirement ratios (RRR) anew.

“The offers from our dealers, they are more than our offer amount. We also saw that in terms of rates, they’re even lower than the current secondary, except for the one-year. That’s why we also made a partial award. We don’t want that it (the rate) would also trend higher than the secondary (market),” Ms. De Leon told reporters.

“Of course, given the two [other] tenors, they are all going down following the pronouncements of [BSP] Governor [Benjamin E.] Diokno that there is also room for the Monetary Board to cut policy rates and also even the RRR,” Ms. De Leon added.

Mr. Diokno told reporters on Friday that the central bank’s plan to cut benchmark interest rates anew “won’t reach November.”

“Could be October or September,” Mr. Diokno said.

The BSP chief added that they are still studying whether they will announce and implement the planned cuts to policy rates and big banks’ RRR in one go or in different events.

The central bank’s Monetary Board holds policy-setting meetings every six weeks. Its remaining reviews for the year are scheduled on Sept. 26, Nov. 14 and Dec. 12.

The BSP has cut rates by a total of 50 bps this year — by 25 bps each last May 9 and Aug. 8 — to 4.25% for the overnight reverse repurchase rate, 4.75% for overnight lending and 3.75% for overnight deposit, partially dialing back the 175-bp cumulative hikes triggered last year by successive multi-year high inflation that peaked at a nine-year high.

Mr. Diokno earlier said the central bank is looking to cut policy rates by another 25 bps as well as slash big banks’ reserve ratios before the year ends.

He said the Monetary Board plans to “pre-announce” RRR moves on a quarterly basis to prepare the markets.

Currently, the RRR is at 16% for big banks and six percent for thrift banks following the phased 200-bp cut implemented after an off-cycle meeting last May. The reserve ratio of rural and cooperative lenders was also cut to four percent from five percent effective May 31.

Mr. Diokno has said he is committed to trim universal and commercial banks’ RRR to single digit before his term ends in 2023.

LIQUIDITY
Ms. De Leon said yesterday that the central bank’s expected RRR cut and the BTr’s redemption of around P12 billion worth of maturing securities will unleash additional liquidity into the market.

“In terms of additional liquidity that will be flushed into the system, if ever they cut the RRR again sometime in the fourth quarter, and of course we have a maturity — we have a redemption of about P12 billion — so that’s additional liquidity flow,” she added.

Robinsons Bank Corp. peso debt trader Kevin S. Palma said aside from the BSP policy decision, investors are also waiting for catalysts ahead of the Federal Open Market Committee’s two-day review this week.

“Demand for T-bills waned a bit as some investors chose to sit on the fence and wait for fresh catalysts such as the conclusion of the Federal Open Market Committee meeting on September 19, just a week ahead of the BSP’s Monetary Board meeting,” Mr. Palma said in a phone message.

With US-China trade tensions roiling markets, investors are counting on support for stocks coming from a Federal Reserve willing to keep cutting interest rates to help the US economy avoid a severe downturn.

A quarter-point rate reduction is widely expected when the Fed issues its next policy statement on Wednesday, which would be the central bank’s second such cut after lowering rates in July for the first time since 2008. That puts the greater focus on clues about how much further the Fed will go.

The central bank in July cited signs of a global slowdown, simmering US-China trade tensions and a desire to boost too-low inflation as it lowered borrowing costs.

Markets are pricing in a near 90% probability that the Fed will shave another quarter point from its current overnight lending rate of 2.00% to 2.25%, according to the CME Group’s FedWatch tool. There is a roughly 65% probability that the Fed makes at least one more quarter-point cut by the end of the year, according to FedWatch.

Meanwhile, Mr. Palma said investors might have also considered the recent attack on oil facilities of the world’s biggest oil exporter Saudi Arabia over the weekend, which shut down 5% of global supply.

“Compounding investors’ divergence in sentiment are the possibility of a trade truce coupled and the weekend attack in Saudi Arabian oil facilities,” he said.

The government is set to borrow P230 billion from the domestic market this quarter through T-bills and Treasury bonds.

It wants 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. — Beatrice M. Laforga with Reuters

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