THE GOVERNMENT fully awarded the reissued seven-year Treasury bonds (T-bond) on offer yesterday amid robust demand as market participants priced in possible monetary policy easing by local and US central banks.
The Bureau of the Treasury (BTr) raised P20 billion as planned from its T-bond offer yesterday after receiving bids totalling P74.94 billion, more than thrice the amount the government wanted to borrow.
The seven-year papers, which carry a coupon of 6.25%, fetched an average rate of 4.845%, 89.8 basis points (bp) lower than the 5.743% fetched when the debt papers were last offered on May 15. The bonds have a remaining life of six years and seven months.
At the secondary market, the seven-year papers were quoted at 4.944% yesterday, based on the PHP Bloomberg Valuation Service Reference Rates.
National Treasurer Rosalia V. De Leon said the Treasury expects the rate to come down given dovish pronouncements from the US Federal Reserve (Fed) and the Bangko Sentral ng Pilipinas (BSP).
“We heard about pronouncements from both (Fed chair Jerome) Powell and (BSP Governor Benjamin E.) Diokno that again the cut on policy rates is on the table,” Ms. De Leon told reporters following the auction.
Mr. Powell, in a testimony before the US Congress last week, hinted on a possible cut in benchmark rates, saying the central bank will “act as appropriate” to sustain expansion as “crosscurrents” such as trade tensions and concern on global growth are weighing on the world’s largest economy.
On the other hand, Mr. Diokno said last week that the BSP will likely cut policy rates in the second semester before moving to reduce banks’ reserve requirement ratio (RRR).
On May 9, the BSP’s policy-setting Monetary Board reduced interest rates by 25 bps amid a tamer price outlook after it implemented 175-bp worth of increases last year in five consecutive meetings due to a spike in inflation.
However, it took a “prudent pause” at its June 20 meeting to assess the impact of its prior monetary adjustments.
“The expectation of easing…triggered the huge participation in today’s auction (where) we (had) almost P75 billion (in offers),” Ms. De Leon said on Tuesday, adding that about P54 billion worth of maturing government securities “adds up to more liquidity.”
Sought for comment, Robinsons Bank Corp. peso debt trader Kevin S. Palma said the rally in bond yields is being driven by liquidity.
“You have the effect of the RRR cut, coupled with reinvestment demand from bond maturities this week,” Mr. Palma said in a Viber message. “Pair that with expectations of easier monetary policies both in the US and the Philippines, and you get a very strong auction turnout.”
The government is set to borrow P230 billion from the domestic market this quarter through a mix of Treasury bills and T-bonds, lower than the P315 billion planned in April-June and the P300 billion placed on the auction block in the same period last year.
Meanwhile, Ms. De Leon said the Treasury is not planning to issue retail Treasury bonds (RTB) again this year given the already robust demand for its weekly auctions.
“Given where we are in the auctions, we’re not yet planning for an RTB again. We’ll see,” she said.
In March, the government sold P235.9 billion worth of five-year RTBs to individual and institutional investors at a coupon of 6.25%.
Ms. De Leon added that they will take into consideration the government’s spending plan, given that they “are doing well particularly in the dividends.”
The Department of Finance said on Friday government-owned and -controlled corporations remitted a record P61.3 billion to the Treasury in the year to date, with the Philippine Amusement and Gaming Corp. and the Philippine Deposit Insurance Corp. having the top contributions at P16.17 billion and P4.58 billion, respectively.
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