Bureau of Treasury (BoT)
THE TREASURY made a full award of the five-year bonds it offered on Tuesday.

THE GOVERNMENT fully awarded the fresh five-year Treasury bonds (T-bond) it offered during its auction yesterday, even opening its tap facility to accommodate excess demand from investors.

The Bureau of the Treasury (BTr) raised P20 billion as programmed from its T-bond offer on Tuesday, with total tenders reaching P63.2 billion or more than three times the initial offer.

The five-year papers fetched a coupon rate of 4.25%, which was 122.5 basis points (bp) lower compared to the 5.452% average rate fetched during the previous issuance of fresh five-year papers back in March 6, 2018.

This prompted the BTr to open its tap facility for another P10-billion offering following the huge demand from investors, as well as to fill the gap from the bid rejections they made during previous auctions.

“Given the huge demand in today’s auction, we saw that there are a handful of bids unserved at the 4.25% level so we decide to open the tap for P10 billion… And one other reason is we would also like to cover for past rejections just to fill in that hole in the previous auction,” Deputy Treasurer Erwin D. Sta. Ana told reporters after the auction on Tuesday.

The government last offered five-year T-bonds on Nov. 21 last year, where it auctioned off P15 billion in reissued papers with a remaining life of four years and three months. It made a full award of the offer. The bonds, which carry a coupon of 5.5%, were issued at an average rate of 7.003%.

At the secondary market on Tuesday, the five-year notes were quoted at 4.37%, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

Mr. Sta. Ana said the auction result was expected following the Bangko Sentral ng Pilipinas’ (BSP) announcement of another 100-bp cut in banks’ reserve requirement ratios (RRR), which will take effect in November, as well as the upcoming maturity of government securities worth P197 billion.

“The announcement of an RRR cut on bonds this morning prompted the rally on belly bonds, making the 4.25% rate that the new 5-76 bond fetched attractive relative to the rest of the bond curve,” Carlyn Therese X. Dulay, first vice-president and head of Institutional Sales at Security Bank Corp., said on Tuesday.

The BSP announced last month that it will reduce lenders’ RRR by another 100 bps effective November to bring the reserve requirement of universal and commercial banks to 15% from 16%. The reserve ratios of thrift banks will also be cut to five percent from the current six percent, and to three percent from four percent for rural and cooperative banks.

Yesterday, the central bank said the Monetary Board approved the reduction in the reserve requirement rate for bonds issued by banks and quasi-banks (QB) to three percent effective next month in a bid to deepen the local debt market.

This rate is lower than the required reserves of other debt instruments issued by banks such as long-term negotiable certificates of time deposits which is currently at four percent.

“The lower bank reserves on bond issuances is expected to reduce the bond issuers’ intermediation cost that could be passed on to the holders of such securities. The adjustment in the required reserves for bonds complements the BSP’s earlier policy issuance streamlining the rules and requirements for the issuance of debt instruments by banks/QBs. These initiatives are intended to incentivize banks/QBs to tap the domestic bond market as part of its liquidity management,” the BSP said.

Ms. Dulay added that previous comments from the Treasury that there will be no more issuance of retail Treasury bonds this year prompted players to put their investments in other facilities.

“The recent statement of the BTr regarding their decision not to issue a retail Treasury bond this year also emboldened market participants to put their excess cash to use,” she said.

Meanwhile, Mr. Sta. Ana said the BTr is “on track” with their requests for approvals for its planned offshore and domestic borrowings next year.

“We started the request for approvals so we will be expecting some comments, let’s say from BSP, moving forward. So we are on track with respect to seeking approvals on this, both domestic and foreign,” the official said.

He declined to disclose the volume but said “it’s supposed to cover all foreign commercial borrowings for 2020.”

Asked on the possible offshore markets that they will tap next year, he said they will still consider the usual sources such as the euro, dollar, panda and samurai bond markets, but will remain “flexible” as they look for “new opportunities” from other markets such as the Swiss bond market, among others.

“Basically the same markets that we have been issuing in, and there’s a little bit flexibility if there are new opportunities in other markets. For example, Swiss francs, we may also look at that more closely and other markets, I just cited one but I think there could be other markets,” Mr. Sta. Ana said.

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