THE GOVERNMENT fully awarded the reissued 10-year Treasury bonds (T-bond) it offered on Tuesday, with rates dropping following signals from the central bank chief on another policy rate cut and further reductions to lenders’ reserve requirement ratios (RRR).
The Bureau of the Treasury (BTr) raised P20 billion worth of T-bonds yesterday with the offer more than three times oversubscribed, as tenders amounted to P65.2 billion.
The 10-year T-bonds, which carry a coupon rate of 6.875% and have a remaining life of nine years and five months, fetched an average yield of 4.196%, 144.8 basis points lower than the 5.644% quoted when the papers were last offered on May 28.
At the secondary market yesterday, the debt notes were quoted at 4.303%, based on the PHP Bloomberg Valuation Service Reference Rates.
Following the auction, National Treasurer Rosalia V. De Leon said yields were lower as expected following the central bank’s rate cut last week and dovish statements from Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.
“We expect that rates would be coming down given the pronouncements by the Governor and of course…the Monetary Board (MB) last Thursday reduced policy rates by 25 basis points. Coming from the Governor, they’re looking at possible RRR cut in September or within the fourth quarter,” Ms. De Leon told reporters.
At its fifth review for the year on Thursday, the central bank’s policy-setting MB cut benchmark rates by 25 basis points, bringing the overnight reverse repurchase rate to 4.25%, and the overnight deposit and lending rates to 3.75% and 4.75%, respectively.
This followed a “prudent pause” in June as well as a 25-bp cut last May that partially dialed back a cumulative 175-bp hike implemented through five meetings last year in order to arrest rising inflation that peaked at a nine-year-high 6.7% in September and October.
In a Bloomberg interview last Friday, Mr. Diokno said policy makers may slash key rates further in their next meeting in September or in the first few weeks of the fourth quarter.
In a separate interview with ABS-CBN News Channel, Mr. Diokno said banks’ RRR may be reduced by another 100 basis points before the Sept. 26 policy meeting.
Mr. Diokno said the already reduced RRR, which is currently at 16% for big banks after the phased 200-bp cut, “is still very high.”
Yesterday, the BSP chief said the policy-setting Monetary Board is looking to announce planned phased RRR cuts ahead of time on a quarterly basis to reduce market speculation.
Sought for comment, a trader also attributed yesterday’s auction results to “the possibility of more cuts on both policy rate and RRR.”
“Eventually, they’ll look again at rate cuts so they’re taking the opportunity right now to also lock in hopefully for the 10 years,” the trader said.
The trader added that demand was strong amid the escalation of the trade dispute between the US and China.
Last week, the People’s Bank of China devalued its own currency to 7 against the dollar in retaliation against Washington’s plan to impose an additional 10% tariff on $300 billion worth of Chinese goods starting Sept. 1.
Tensions between the two countries escalated further after the US called China a “currency manipulator.”
The government plans to borrow P230 billion from the domestic market this quarter through Treasury bills and T-bonds.
It is looking to raise P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product. — Beatrice M. Laforga