THE GOVERNMENT fully awarded the P20 billion in Treasury bills (T-bills) it auctioned off on Monday as rates mostly continue to decline on expectations of monetary easing and investors’ flight to safe havens due to the coronavirus disease 2019 (COVID-19) outbreak.

The Bureau of the Treasury (BTr) accepted bids worth P20 billion as planned for the T-bills on offer yesterday as the offer was almost thrice oversubscribed, with total tenders reaching P53 billion

Broken down, the Treasury made a full P6-billion award of the 91-day T-bills out of total bids worth P10.15 billion. The three-month papers fetched an average rate of 3.024%, inching up by one basis point (bp) from the 3.013% seen in the auction last week.

The BTr raised another P6 billion as programmed via the 182-day T-bills from bids worth P12.193 billion. The average rate for the six-month papers inched down 1.2 bps to 3.312% against the 3.324% quoted previously.

For the 364-day papers, the government also made a full award of its P8-billion offer as total tenders amounted to P30.68 billion. The one-year securities fetched an average rate of 3.588%, down by 9.6 bps versus 3.684% seen in the previous offering.

At the secondary market on Monday, the 91-, 182- and 364-day T-bills fetched rates of 3.062%, 3.364% and 3.713%, respectively.

Following the auction, National Treasurer Rosalia V. de Leon said they made a full award of the T-bill offer yesterday amid mostly lower rates, which were driven by market expectations of a 25-bp cut by the Bangko Sentral ng Pilipinas’ (BSP) Monetary Board at its rate-setting meeting on March 19.

“For this auction…coming from the liquidity onshore, we have very significant participation particularly on the one-year tenor given that there would be a yield pickup coming from the short end… We also saw that rates continue to trend downward given the expectations of another rate cut by the BSP coming from the emergency cut made by the Fed (US Federal Reserve) last week,” Ms. De Leon told reporters on Monday.

The central bank’s policy-setting Monetary Board (MB) already cut key rates by 25 bps at its Feb. 6 meeting, bringing the yields on the BSP’s reverse repurchase, overnight deposit and lending facilities to 3.75%, 3.25% and 4.25%, respectively.

This means the BSP has already unwound 100 bps from the 175 bps worth of rate hikes done in 2018 to quell multi-year high inflation.

BSP Governor Benjamin E. Diokno said last week another 25-bp cut is on the table this year, adding that they will assess anew the impact of the virus on the economy during the MB’s March 19 meeting. He earlier said the central bank is not ruling out cuts worth 50 to 75 bps this year.

Sought for comment, a bond trader attributed the lower T-bill rates to investors’ flight to safer assets like government securities as COVID-19 continues to spread and its potential impact on the economy seen to rise.

“Demand (is still robust) since investors prefer securities with shorter tenor amid coronavirus outbreak, especially here in the Philippines. For the next auction, we feel that this will continue to decline since investors continue to prefer safer securities across all tenors,” the trader said over telephone.

Ms. De Leon and the trader both said the downtrend will continue as the damaging impact of the virus persists, which can also be observed in US Treasury market where rates have declined to less than one-percent levels across all tenors. The 10-year and 30-year Treasuries plunged to 0.35% and 0.72%, respectively, on Monday, according to Bloomberg’s website.

Ms. De Leon added that the lower rates were also driven by plunging oil prices in the global market. The Brent crude declined 26% to $33.46 per barrel on Monday, “set for their biggest one-day decline in 29 years,” according to Reuters.

Reports attributed the decline to the “price war” that started in the global market after Saudi Arabia, one of the largest oil-producing country, slashed its official selling prices and announced plans to increase production next month, after the Organization of the Petroleum Exporting Countries failed to come up with a consensus on proposed output cut.

Demand for oil has been declining recently on subdued economic activity due to travel bans and other precautionary measures imposed by several countries to contain the spread of COVID-19. This drove oil prices to drop.

The Treasury has set a P420-billion local borrowing program this quarter, broken down into P240 billion in T-bills and P180 billion via Treasury bonds.

The government plans to raise P1.4 trillion this year from local and foreign lenders to plug 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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