THE GOVERNMENT fully awarded the Treasury bills (T-bill) it auctioned off yesterday as rates declined across the board following easing inflation and the central bank’s recent monetary easing moves.

The Bureau of the Treasury (BTr) raised P20 billion as planned via T-bills on Monday with the offer more than twice oversubscribed, as bids totalled P41.7 billion.

Broken down, the government raised P8 billion as programmed via the 91-day T-bills, with total tenders reaching P14.65 billion. The debt papers fetched an average rate of 2.995%, 4.2 basis points (bp) lower than the 3.037% quoted during the Sept. 16 auction.

The BTr also awarded P6 billion in 182-day securities as planned out of total bids worth P12.75 billion. The yield on the three-month papers averaged at 3.171%, down by 24.9 bps from the previous 3.42%.

For the 364-day debt papers, the Treasury also borrowed P6 billion as planned as the tenor attracted bids worth P14.276 billion. The one-year papers fetched a 3.577% average rate, 8.9 bps lower than the 3.666% seen in the last auction.

At the secondary market, the three-month, six-month and one-year papers were quoted at 3.087%, 3.308% and 3.647%, respectively, on Monday, according to the PHP Bloomberg Valuation Service Reference Rates.

National Treasurer Rosalia V. De Leon said the lower rates fetched yesterday were expected following the Bangko Sentral ng Pilipinas’ (BSP) decision to reduce banks’ reserve requirement ratios (RRR) by another 100 bps effective November.

Ms. De Leon said rates are expected to decline further on the back of additional liquidity from the RRR cut, as well as the redemption of retail Treasury bonds (RTB) in November.

“Kasi even in terms of the rates, we see na it would continue to trend downwards (We expect rates to continue to trend downwards). First, November, yung liquidity. Remember also…meron kaming RTB na redemption (The RRR cut will infuse additional liquidity. Remember also that we’re redeeming RTBs in November) so that’s additional liquidity into the system,” the official said.

The BSP last month said it will reduce the RRR of universal and commercial banks, thrift banks, and rural banks to 15%, five percent and three percent, respectively, by November.

The announcement followed the central bank’s decision to slash benchmark interest rates by 25 bps for the third time this year, taking the rates for overnight reverse repurchase, as well as overnight deposit and lending to four percent, 3.5% and 4.5%, respectively.

A bond trader added that inflation data released last Friday also affected yield movements.

“(Lower rates) should be expected because we had a 0.9% inflation rate last Friday and then likely the inflation rate for October should come alongside the same kind of level because last year — the highest are both in December in October,” the trader by phone yesterday.

Headline inflation eased further to 0.9% in September, the slowest in three years, amid lower food prices and electricity rates, the Philippine Statistics Authority reported on Friday. This compares to the 1.7% logged in August and the 6.7% print in the same month last year.

Last month’s inflation print fell at the low end of the BSP’s 0.6-1.4% forecast for September. It was also below the 1.1% median estimate in BusinessWorld’s poll of 16 economists.

For the nine months to September, headline inflation averaged at 2.8%, well within the BSP’s 2-4% target range for 2019.

Ms. De Leon said the market may have also priced in an “expected” cut by the US Federal Reserve this month amid the weak manufacturing and jobs data.

“They are pricing it in and also coming from the reports…from the Fed, very weak manufacturing data and even ‘yung sa (the) jobs report, so the Fed’s expected to deliver rate cut in October, ‘yung (at their) next policy meeting,”

The Institute for Supply Management (ISM) reported that the non-manufacturing activity index fell to a reading of 52.6 in September, the lowest since August 2016, from 56.4 in August. A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of US economic activity.

The ISM also reported that its measure of national manufacturing activity plunged in September to its lowest level since June 2009, when the Great Recession was ending.

However, the US Labor department reported that the job growth increased slightly last month while the unemployment rate declined to 3.5%, lowest in nearly 50 years

After more than a decade, the Fed has cut twice this year, one in July and September, while the market wait for another cut on its next interest-rate setting meeting on Oct. 29 and 30.

2020 BORROWINGS
Meanwhile, Ms. De Leon said the government will maintain its 75:25 borrowing ratio next year in favor of domestic sources, but will consider borrowing again via the dollar, panda, samurai, and euro bond markets.

“But of course we’ll have to watch the markets…[and] whether we’ll continue to access those markets. Baka (Maybe) there would also be other markets that can be competitive,” she said.

The official said they are seeing a pickup in government disbursements in September and October and noted they are confident of maximizing the 3.2% deficit ceiling this year.

“We’re watching the disbursements and it’s really been picking up for the past two months. Even for October’s first week, we’ve seen very high disbursements, so if this trend continues, then we’ll see that slowly, the deficit level would also be directed towards the target of 3.2%… At the same time, revenues are also picking up, so that’s also compensating for the higher disbursements that we’re seeing,” Ms. De Leon said.

She added that the government’s borrowing plan for the year remains on track as it has a “strong cash position” to meet its spending plan this year and also for 2020.

The government is set to borrow P220 billion from the local market this quarter, broken down into P100 billion in T-bills and P120 billion via Treasury bonds.

It 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. — B.M. Laforga with Reuters

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