T-bill rates seen easing further

RATES OF Treasury bills (T-bills) on offer on Monday will likely decline as the market continues its flight to safe assets like government securities.

The Bureau of the Treasury (BTr) wants to raise P20 billion via T-bills on Monday: P5 billion each via the 91- and 182-day debt papers and P10 billion from the 364-day securities.

The BTr canceled the auction for 35-day papers scheduled on Tuesday to give way to the ongoing offer of five-year retail Treasury bonds (RTBs).

A bond trader said they expect the rates to slip by 5-10 basis points (bps) from the previous auction for the three-month papers, while the yield on the six-month T-bills may decline by just up to 5 bps.

“While there are no clues on future economic policy yet and while the RTB offering is ongoing, preference is for debt securities at the shorter end of the curve. Also, it seems like the excess liquidity is being mopped up by the ongoing RTB offering,” the trader said via Viber on Friday.

Yields will continue to ease by no more than 10 bps due to “relatively large excess peso liquidity in the financial system recently that could help keep local interest rate benchmarks near record low levels,” said Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp.

“(Another factor is the) slower economic recovery prospects especially should there be stricter quarantine measures amid the recent spike in new COVID-19 cases (that) would eventually support more or longer monetary easing measures including any possible further cut in banks RRR,” Mr. Ricafort said via text message.

T-bill rates dropped across- the-board last week on strong demand, prompting the BTr to make a full award of the P20 billion it offered out of P72.467 billion in bids.

It raised P5 billion as planned via the 91-day T-bills from P23.414 billion in tenders. The three-month papers fetched a lower average rate of 1.454% from the 1.587% logged at the June 13 auction.

The government also made a full P5-billion award of 182-day securities out of bids worth P18.852 billion. The average rate of the six-month T-bills dipped to 1.625% from 1.687% previously.

For the 364-day instruments, the Treasury borrowed P10 billion as planned from bids worth P23.414 billion. The one-year debt papers fetched an average rate of 1.77%, down from 1.782% previously.

Yields on the 91-, 182- and 364-day T-bills were at 1.501%, 1.613% and 1.807%, respectively, at the secondary market on Friday, based on the PHP Bloomberg Valuation Service Reference Rates.

Mr. Ricafort added the surprise 100-bp cut in the reserve requirement ratios (RRR) of thrift and rural banks will infuse around P10 billion in additional liquidity into the financial system, which “could still support any further slight easing in the upcoming Treasury bill auction yields.”

The Bangko Sentral ng Pilipinas (BSP) last week trimmed the RRR of smaller banks by one percentage point to three percent for thrift banks and two percent for rural and cooperative lenders. The reduction will take effect on Friday, July 31.

The move is part of the central bank’s efforts to beef up liquidity in the market amid the ongoing coronavirus crisis. In April, the BSP also reduced the RRR of universal and commercial banks by two percentage points to 12%.

The Treasury is now in the second week of its three-week offer period for the five-year RTBs.

National Treasurer Rosalia V. de Leon said last week the amount raised via the retail bond offer so far has already exceeded the record P310 billion sold in three-year RTBs in February.

The Treasury awarded an initial P192.71 billion in five-year RTBs at a coupon of 2.625% at the rate-setting auction on July 16.

The public offer period is set to run until Aug. 7, unless closed earlier by the Treasury.

The Treasury also opened an exchange offer program for holders of the RTB 10-01, FXTN 05-73, RTB 10-02 and FXTN 07-57 who want to swap their old bonds for the new retail bonds. The amount of bonds eligible for swap is about P321 billion.

The retail bonds will be issued on Aug. 12 and will mature on Aug. 12, 2025. The papers will be listed on the Philippine Dealing and Exchange Corp.

The government has set a P205-billion borrowing program for July and will offer P145 billion in T-bills via weekly auctions and P60 billion in T-bonds to be auctioned off fortnightly.

It borrows from local and foreign lenders to plug its budget deficit seen to hit 8.4-9% of gross domestic product this year. — Beatrice M. Laforga