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Gov’t partially awards T-bills as bets on RRR cuts affect demand

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THE GOVERNMENT made a partial award of the Treasury bills (T-bills) it offered yesterday, rejecting all bids for the shortest tenor as rates climbed amid rising expectations of another cut in banks’ reserve requirement ratios (RRR).

The Bureau of the Treasury (BTr) raised just P12 billion via the T-bills out of its P20-billion program, even as the offer was almost three times oversubscribed, with tenders reaching P59.8 billion.

The Treasury did not award any three-month papers as its rate climbed. Total bids amounted to P21.65 billion versus the government’s P8-billion offer.

Had the government made a full award of the 91-day T-bills, its average rate would have climbed to 3.122%, 12.7 basis points (bps) higher than the 2.995% fetched during the Oct. 8 auction.

Meanwhile, the government awarded P6 billion as planned in the 182-day T-bills out of bids worth P16.41 billion. The tenor’s average rate inched up by 0.3 bp to 3.174% from the 3.171% recorded previously.

For the 364-day papers, the Treasury likewise borrowed P6 billion as programmed as the tenor attracted demand worth P21.72 billion. The yield on the one-year papers went down by 0.1 bp to 3.576% from the 3.577 seen during the last auction.




At the secondary market on Monday, yields on the three-month, six-month, and one-year T-bills stood at 3.165%, 3.299%, and 3.648%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates.

Following the auction, National Treasurer Rosalia V. De Leon said the market flocked to the longer T-bill tenors after Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno hinted that the Monetary Board may cut banks’ reserve ratios further before the year ends.

“I think there’s really now a move going to the longer tenors, so we expect siguro na for the bonds, [we might see]…higher subscription. Given the lower rates, they’re going for the higher yields so they’re maximizing it also. Tapos (And) there’s another announcement on the (triple RRR cut),” Ms. De Leon told reporters.

The official said the auction committee rejected all bids for the three-month papers as the rates fetched were even higher than prevailing yields at the secondary marker.

“There’s really no reason why we should be accepting because of the higher rates for the 91-day,” Ms. De Leon said.

With the upcoming 100-bp cut in banks’ RRR next month, anticipation of additional reductions within the year, as well as the huge volume of government securities maturing in November, Ms. De Leon said the market will be “flush with liquidity.”

Robinsons Bank Corp. peso debt trader Kevin S. Palma said the auction results were “expected” as yields moved sideways, adding that investors favored longer tenors in anticipation of another RRR cut.

“Results were very much in line with expectations with yields just trending sideways from previous auction and moved in line with its respective secondary market counterparts. Despite the rejection on the 91-day tenor, healthy demand still met the auction as investors favored the longer end of the curve due to possibility of another RRR cut within the year,” Mr. Palma said via phone message.

“Reinvestment requirements from P24-billion T-bill maturities for the remainder of the month have propelled demand for this auction further,” Mr. Palma added.

BSP Governor Benjamin E. Diokno earlier said the central bank may consider another RRR cut after the cumulative 300-bp reduction for the year thus far, depending on relevant data expected to be released next month and in December.

The BSP announced last month that it will reduce lenders’ RRR by another 100 bps effective November to bring the reserve requirement of universal and commercial banks to 15% from 16%. The reserve ratios of thrift banks will also be cut to five percent from the current six percent, and to three percent from four percent for rural and cooperative banks.

The central bank last week said it will likewise cut the RRR for bonds issued by banks and quasi-banks to three percent, down by 300 bps from the current six percent, effective next month.

It said the move is “part of its commitment to contribute to deepening of the local debt market.”

On the other hand, the BSP chief said the central bank is likely done cutting policy rates for the year.

The government is set to borrow P220 billion from the local market this quarter, broken down into P100 billion in T-bills and P120 billion via Treasury bonds.

2020 BORROWING PLAN
Meanwhile, Ms. De Leon said that they will maintain a 75:25 financing mix for next year in favor of domestic lenders, with P3.5 billion of this via offshore commercial borrowings, excluding program loans and official development assistance.

Economic managers have set a P1.4-trillion borrowing program for 2020, higher than the P1.189 trillion the government is planning to raise this year from local and foreign sources to finance its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product.

Wala pang breakdown (There’s no breakdown of the program yet). [We’re considering] dollar, and then the yen, samurai and then the euro (bond markets),” Ms. De Leon said.

Asked if the US bond market will be the first in their borrowing program for next year, she said, “Yes, I mean, if you follow the pattern, that would be the schedule.” — B.M. Laforga

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