TREASURY BONDS (T-bonds) on offer on Tuesday will likely fetch lower rates as the market awaits the central bank’s move on interest rates after the release of latest inflation data.

The Bureau of the Treasury (BTr) is offering on Tuesday P20 billion worth of reissued three-year T-bonds with a remaining life of two years and six months.

For Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., the yields on the tenor on offer tomorrow may move within the 3.6%-3.8% range.

On Oct. 1, the BTr borrowed P20 billion as planned from three-year bonds out of bids totaling P50.8 billion. The three-year papers fetched an average rate of 3.996%, 3.5 basis points (bps) higher than the 3.961% quoted when the tenor was offered on Aug. 27.

“The markets will anticipate the next BSP (Bangko Sentral ng Pilipinas) monetary policy-setting meeting on Dec. 12, 2019 for a possible cut in local policy rates that cannot be completely ruled out amid relatively low/benign inflation that is still well below the 2%-4% target,” Mr. Ricafort said via text message.

The three-year bonds were quoted at 3.922% at the secondary market on Friday, based on the PHP Bloomberg Valuation Service Reference Rates.

Inflation picked up to 1.3% in November due to higher prices in some commodity groups. Last month’s print was higher than the 0.8% recorded in the preceding month as well as the 1.2% median estimate in BusinessWorld’s poll of 16 economists.

Year-to-date, inflation averaged at 2.5% which is still within the 2-4% target range set by the BSP for 2019.

BSP Governor Benjamin E. Diokno earlier said the Monetary Board will watch out for November inflation data during its eighth and last policy-setting meeting on Thursday, Dec. 12.

ING Bank NV Manila Branch Senior Economist Nicholas Antonio T. Mapa expects the auction to be met with strong demand from the liquidity released after the banks’ reserve requirement ratio (RRR) cut took effect this month.

This may even prompt the Treasury to open its tap facility to accommodate oversubscription, he said.

“BSP recently released a fresh P100 billion in liquidity from a RRR reduction and this could help drive the government securities market rally for the time being as funds stay away from bank loans for the time being,” Mr. Mapa said.

“However, an offsetting factor would be some seasonal increase in short-dated local interest rates, or some premium for crossing-the-year peso funds/deposits/borrowings amid some window-dressing activities in view of the accounting yearend,” RCBC’s Mr. Ricafort added.

The RRR for universal and commercial lenders now stands at 14% and four percent for thrift banks following 400 bps worth of cuts for the year thus far, while the reserve ratio of nonbank financial institutions with quasi-banking functions is at 14%. Meanwhile, the RRR of rural banks is at three percent.

The Treasury has set a P220 billion borrowing program this quarter for the local market, broken down into P100 billion in Treasury bills and P120 billion via Treasury bonds. — B.M. Laforga

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