Gov’t fully awards T-bills as yields decline further

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THE Bureau of the Treasury headquarters in Manila.

THE GOVERNMENT fully awarded the Treasury bills (T-bill) it offered yesterday as rates declined across all tenors on the back of dovish remarks from central bank officials here and abroad and strong liquidity.

The Bureau of the Treasury (BTr) made a full award of T-bills worth P15 billion yesterday as its offer was more than thrice oversubscribed, with tenders totalling P45.8 billion.

Broken down, the government raised P4 billion as planned via the 92-day T-bill, with tenders reaching P10.76 billion. The tenor’s average rate dropped to 3.254% yesterday, 14.4 basis points (bp) lower than the 3.398% fetched during the Aug. 6 offering.

For the 183-day debt papers, the Treasury fully awarded P5 billion as programmed out of bids worth P14.11 billion. The average yield declined 20.6 bps to 3.471% from the previous offer’s 3.677%.

The government also raised P6 billion as planned via the 365-day T-bills, with tenders amounting to P20.885 billion. The one-year tenor’s average rate declined 26.2 bps to 3.636% from the 3.898% logged during the previous T-bill offering.

The T-bill tenors were adjusted due to the advance settlement date of Aug. 20, with Aug. 1 being a non-working holiday.

At the secondary market yesterday, the three-month, six-month and one-year T-bills were quoted at 3.369%, 3.491% and 3.706%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates.

Deputy Treasurer Erwin D. Sta Ana said the continued decline in T-bill rates was caused by dovish remarks from officials of central banks such as the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve, as well as the trade dispute between the world’s two largest economies.

“There are several triggers. Pronouncements from the BSP for more manageable inflation in the third and probably in the fourth quarter as the government mentioned just recently. Information about further cuts on the RRR (reserve requirement ratio) and even in the policy rate not only here but also discussions with the Fed. And then there’s that continuing trade dispute between US and China,” Mr. Sta Ana told reporters after Monday’s auction.

“So it points to maybe a slightly lower rate moving forward but we can’t just pinpoint when it is going to stabilize,” he said.

In separate interviews, BSP Governor Benjamin E. Diokno hinted on another cut in key policy rates as well as a 25 bps cut in big banks’ RRR as early as next month.

Meanwhile, markets are betting on another cut from the US central bank amid rallying US Treasuries and Washington’s ongoing trade war with Beijing.

The US Treasury bond yield curve inverted last week for the first time since 2007, in a sign of investor concern that the world’s biggest economy could be heading for recession.

The inversion — a situation where shorter-dated borrowing costs are higher than longer ones — saw US two-year note yields rise above the 10-year bond yield.

US President Donald Trump and top White House officials dismissed concerns that economic growth may be faltering, saying on Sunday they saw little risk of recession despite a volatile week on global bond markets, and insisting their trade war with China was doing no damage to the United States.

Sought for comment, a bond trader said strong domestic liquidity and fears of a looming US recession drove T-bill rates lower.

“The biggest factor is the domestic liquidity, as seen in the tenders for the auction. And definitely supported by the recession seen by analysts in the US economy,” Amalgamated Investment Bancorporation peso fixed-income trader Rocky A. Bautista said.

The government is set to borrow P230 billion from the domestic market this quarter through T-bills and Treasury 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.

Meanwhile, Mr. Sta Ana said the any domestic pre-funding for next year’s spending needs will depend on the ongoing implementation of the government’s catch-up plan, while offshore borrowings are likely done for the year.

“Depending on the catch-up in the spending towards the end of this quarter or fourth quarter, we still have that option for domestic [pre-funding],” Mr. Sta. Ana said.

He said they are currently working with the market, regulators and private sector for a capital market blueprint with a comprehensive three- to five-year road map for priority programs.

“Well, basically, we’re working with the market now on the capital market blueprint. Not only GS (government securities), although that’s obviously our lookout,” he said.

The official added that the Treasury may announce new market makers for government securities in November.

“So now we’re looking at the score cards — so who’s in, who’s out. There’s still an opportunity to catch up for those that did not make the cut but it’s very preliminary at this time,” he added.

The Treasury in December 2017 named 10 market makers under its Enhanced Government Securities Eligible Dealers program. The selection criteria include bond volume, bill volume, auction participation, bid efficiency, as well as the volume and number of trades on government securities.

Some privileges of market makers include the submission of both competitive and non-competitive bids in primary auctions of regular issues subject to max number of bids to be determined by Treasury bureau; participation in second round auctions; due consideration on participation in special issues and liability management transactions of the bureau; and participation in market consultations conducted by the Treasury, among others.

Mr. Sta Ana added that the Treasury is also trying to “revitalize” the repurchase or repo market and is planning to expand this to include to non-banks such as insurance companies and funds as the interbank repo market has not attracted enough people.

“[Due to] the market conditions over the past year and early this 2019…people shun away from trading, so that’s where the repo market should be. That’s what the repo market should be addressing,” he said. “So even when markets are difficult, you have a mechanism where participants can actually hedge their positions or get more liquidity. Apparently it’s not there.”

However, he said such plans are still being discussed.

The BSP, the BTr and the Securities and Exchange Commission set up the repo market in 2017 where banks could buy and sell securities which will generate liquidity.

Under a repo agreement, one party sells peso-denominated debt papers like T-bills and bonds to another dealer with the promise to buy these back at a set price and a future date. In the process, the seller gets hold of short-term liquidity to hand out fresh loans and service client withdrawals, among others. — B.M. Laforga