THE GOVERNMENT fully awarded the P20 billion in Treasury bonds (T-bond) it auctioned off yesterday, and decided to open the tap facility for another P20-billion offer due to strong liquidity.

The Bureau of the Treasury (BTr) raised P20 billion via seven-year reissued T-bonds on Monday as the offer was more twice oversubscribed, with bids totalling P56 billion. Amid strong demand for the securities, the Treasury opened its tap facility to raise another P20 billion.

The bonds, which have a remaining life of six years and three months, fetched an average rate of 4.322%, 18.1 basis points (bp) lower than the 4.503% quoted during the previous auction held on Sept. 10.

At the secondary market on Tuesday, the seven-year bonds were quoted at 4.533%, according to the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

Following the auction, National Treasurer Rosalia V. De Leon said rates declined following the Bangko Sentral ng Pilipinas’ (BSP) move to cut banks’ reserve requirement ratios (RRR) anew as well as expectations of further easing by the US Federal Reserve.

“We expected…that we will be receiving strong offers coming from the announcements of central bank governor about additional liquidity that will be flushed into the system with the cut in RRR this November, then yung sa December na naman (then there’s the December cut, too),” Ms. De Leon told reporters.

“Also, the banks, they are also expecting the maturities coming in mid-November — that’s P190 billion in maturities. We’re awash, flushed with cash. That bodes well for the reduction in terms of the rates, and of course the good reception we’re getting,” she added.

A bond trader said by phone that rates were at the lower end of market expectations following the RRR cut announcement.

“For the auction, it’s in line within expectations — just at the lower end of the market expectations. The drivers were the recent cut in the RRR and also in anticipation in upcoming maturity, so most market players are repositioning themselves ahead of that,” the trader said.

In a statement last week, the BSP said its policy-setting Monetary Board (MB) decided to slash the RRR of universal, commercial and thrift banks by another 100 bps effective December, bringing total reductions to their reserve ratios for this year to 400 bps.

The MB said the cut will also apply to the reserve ratio of non-bank financial institutions with quasi-banking functions (NBQBs).

This latest cut will follow a 100-bp reduction in all banks’ RRR announced on Sept. 27 which takes effect next month and will bring the reserve ratio of universal and commercial lenders to 14% by December, while the RRR of thrift banks will stand at four percent.

Meanwhile, the reserve ratio of rural banks, which will go down to three percent next month, was untouched.

On the other hand, the reserve ratio of NBQBs will be cut to 14% by December.

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.

Meanwhile, the Treasury is set to launch its planned prize bonds in mid-November, but will only be limited to individuals, associations and cooperatives to attract them to invest ahead of the holiday season, Ms. De Leon said.

Prize bonds are like the lottery bonds issued in Pakistan and other countries. Through this scheme, bonds are randomly selected within an issue and are redeemed at a higher value than the face value of the debt paper.

Ms. De Leon said the bonds will have a tenor of one year and will be offered for three weeks until December. They will be offered in multiples of P500, while the maximum investment will be announced when the Treasury announces the mechanics, which she said are already being finalized and will hopefully out by the first week of November.

The coupon rate will be “market-based,” the official said.

Aside from coupon payments, the Treasury will also set aside a part of the amount raised for jackpot prize.

Draws will also be done every three months, Ms. De Leon said, with prizes amounting to P20,000, P100,000 and can reach as much as P1 million.

“You don’t get the full coupon, but you have the opportunity to be able to get higher earnings coming out of your investment of as low as P500,” she said.

She said that unlike other cash prizes, the offer is “principal-protected,” which means investors can redeem their initial investment after it matures in one year, “so you’re not throwing away any good money at all.”

The last time the government offered a prize bond was around 1970s called the “Premyo Savings Bond,” but compared to the previous offer, Ms. De Leon said investors will still receive the coupon since only a part of it will be allotted for prizes.

State-run banks Land Bank of the Philippines and the Development Bank of the Philippines will be in charge of marketing the bonds to other selling agents, the official said.

For the Treasury’s marketing strategy, Ms. De Leon said they can do provincial road shows as well as via online so they can brief their targeted market. — B.M. Laforga