Gov’t fully awards Treasury bills as demand soars after RRR cuts

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THE GOVERNMENT made a full award of the Treasury bills (T-bill) on offer yesterday, with rates dropping across all tenors on overwhelming demand brought by the second phase of reductions to banks’ reserve requirement ratios (RRR) as well as limited supply of short-dated securities.

The Bureau of the Treasury (BTr) raised P15 billion as planned via the T-bills it placed on the auction block Monday. Total bids from banks and other financial institutions surged to P50.5 billion, more than thrice the amount the Treasury wanted to borrow.

Broken down, the government borrowed P4 billion as programmed via the 91-day tenor yesterday as bids amounted to P10.370 billion. The average rate plunged 50.2 basis points (bp) to 3.883% from the 4.385% logged in the previous auction.

The Treasury also made a full award of the 182-day papers as it accepted P5 billion as planned out of offers totalling P19.15 billion. The average yield declined 48.5 bps to 4.238% from last week’s 4.723%.

For the 364-day T-bills, the BTr borrowed the programmed P6 billion out of the P21.01 billion tendered by market participants. Its average yield slipped 25 bps to 4.736% from the 4.986% tallied in the previous offering.

Based on the PHP Bloomberg Valuation Service Reference Rates, the three-month, six-month and one-year papers were quoted at 4.203%, 4.48%, and 4.793% yesterday, respectively.

National Treasurer Rosalia V. De Leon said the Treasury saw overwhelming demand from investors yesterday.

“We have an excellent turnout in terms of the volume that we received given…the following tranche of the RRR cut and then obviously also the supply is very limited,” Ms. De Leon told reporters yesterday.

The BTr is set to raise P90 billion in T-bills in the third quarter through six fortnightly auctions, less than half of the P195 billion in T-bills it placed on the auction block via weekly auctions the previous quarter.

“We have downsized our T-bills issuance so the demand is higher but the supply is lower,” Ms. De Leon said.

Meanwhile, the Bangko Sentral ng Pilipinas (BSP) trimmed banks’ RRR by 50 bps to 16.5% for universal and commercial banks and to 6.5% for thrift lenders effective June 28, coming from a 100-bp reduction late in May.

Ms. De Leon also attributed the decline in yields to expectations of a rate cut by the BSP as well as the US Federal Reserve.

“(There is) an anticipation of a possible rate cut of the MB (Monetary Board) given the inflation print of 2.7% last June and after also the Fed talk about a possible cut during their FOMC (Federal Open Market Committee) meeting this July.”

Inflation eased in June to post its slowest reading in almost two years at 2.7%, down from 3.2% in May and 5.2% in June 2018, giving more room for the BSP to continue loosening monetary policy.

Sought for comment, Robinsons Bank Corp. peso debt trader Kevin S. Palma said strong demand for short-term papers continues to be evident.

“These lower-than-expected average rates could be attributed to the positive investor sentiment brought by strong and improving fundamentals of the country,” Mr. Palma said in a phone message.

The government plans to borrow P230 billion from the domestic market this quarter, broken down into P90 billion in T-bills and P140 billion in Treasury bonds, lower than the P315 billion planned in April-June as well as the P300 billion placed on the auction block in last year’s third quarter.

Meanwhile, Ms. De Leon said the government is eyeing to issue yen-denominated or “samurai” bonds before the Obon Festival in Japan, as they are finalizing the terms of the offer.

“We will have a soft sounding, then there will be a ‘no-or-go’ whether we will proceed based on the market sounding. Based on that, if the price is something acceptable to us, then we will proceed,” the official said in a mix of English and Filipino.

The government is looking to sell as much as $1 billion in yen-denominated bonds in three-, five- or seven-, and 10-year tenors. It is set to return to the Japanese bond market after selling ¥154.2 billion ($1.39 billion) in offshore bonds in three different tenors in August 2018.

Asked when will the government finish preparing for the bond sale, Ms. De Leon said: “We are looking around sometime late July or early August…before the ghost month or Obon.”

The Obon Festival usually takes place mid-August.

The government 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. — Karl Angelo N. Vidal