T-bill, T-bond rates to decline

GOVERNMENT SECURITIES on offer this week will likely fetch lower rates amid weaker economic outlook and the possibility of monetary easing.

The Bureau of the Treasury (BTr) plans to borrow P20 billion in Treasury bonds (T-bonds) on Monday, broken down into P5 billion each from the 91- and 182-day debt papers and P10 billion via the 365-day instruments.

On Tuesday, the BTr will offer P30 billion in reissued 10-year Treasury bonds (T-bonds) carrying a coupon of 2.875% and with a remaining life of nine years and 11 months.

Rates of the T-bills could ease by seven to 15 basis points (bps), Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message over the weekend.

He said the market is pricing in weaker economic conditions with Metro Manila and other key cities shifted back to stricter lockdown, as well as the record 16.5% contraction in second-quarter gross domestic product (GDP), which “could increase the possibility of further monetary easing measures especially by further cuts in banks’ RRR (reserve requirement ratio) as further support meadow may be needed most by the economy at this time.”

The country officially entered a technical recession after posting two straight quarters of decline. This brought the first-half average to -9%. The economy must post a 2.2% decline at most in second-half GDP to keep the full-year average within the projected 5.5% contraction.

Meanwhile, the central bank has been easing monetary policy to cushion the impact of the coronavirus pandemic on the economy, slashing benchmark interest rates by 175 bps so far this year and trimming the reserve requirement of banks to boost liquidity.

Rates on the Bangko Sentral ng Pilipinas’ (BSP) overnight reverse repurchase, lending and deposit facilities are currently at record lows of 2.25%, 2.75 and 1.75%, respectively.

The RRR of thrift and rural banks were cut by 100 bps last month to three percent and two percent, respectively, and the reserve ratio of universal and commercial banks was slashed by 200 bps in April to 12%.

Meanwhile, a bond trader expects demand for the T-bills will be “less than usual as investors will try to extend to longer tenors given the “higher consumer price index (short term) and slow growth (as recovery is not yet in sight).”

The BTr made a full P20-billion award of the T-bills it offered last week as rates declined across-the-board. Total tenders hit P76.405 billion.

Broken down, the government raised P5 billion as planned via the 91-day debt papers from bids worth P25.51 billion. The average rate fetched went down to 1.221% from the 1.335% logged in the July 27 auction.

It also made a full award of P5 billion in 182-day papers out of P23.585 billion in tenders at an average rate of 1.454%, down from 1.605% previously.

For the 364-day securities, the Treasury fully awarded its P10-billion offer at a lower average rate of 1.749% against 1.758% previously.

The average yield of the 10-year T-bonds may settle between 2.6-2.7%, Mr. Ricafort said, to hit “new record lows.”

“However, an offsetting factor is the record RTB (retail Treasury bond) issuance of P516.3 billion that could siphon off some of the excess peso funds in the financial system,” he added.

The government made a full P30-billion award of its offer of 10-year bonds on July 7 out of total bids worth P59.71 billion.

At the secondary market, rates of 91-, 182- and 364-day T-bills stood at 1.288%, 1.535% and 1.790%, respectively, while the 10-year notes were quoted at 2.693%, based on Bloomberg Valuation Service Reference Rates posted on Philippine Dealing & Exchange Corp.’s website.

The Treasury on Friday raised a record P488.5 billion in fresh funds or new money via the five-year retail Treasury bonds and P27.8 billion from the bond switch offer.

The bonds bear a coupon of 2.625% and will be issued on Wednesday, Aug. 12. The debt papers will be listed on the Philippine Dealing and Exchange Corp.

The government has set a P170-billion borrowing program for August. It will offer P110 billion in T-bills weekly 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 9.6% of GDP this year. It plans to borrow around P3 trillion this year. — B.M. Laforga