Reissued 20-year bonds to fetch slightly higher rate ahead of BSP

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RATES of the Treasury bonds (T-bond) on offer tomorrow will likely move sideways amid expectations of an interest rate cut when the Bangko Sentral ng Pilipinas (BSP) meets this week, as well as bets of further reductions to big banks’ reserve requirement ratio (RRR).

The Bureau of the Treasury (BTr) will offer P20 billion worth of reissued 20-year bonds on Tuesday with a remaining life of 19 years and four months. The bonds carry a coupon rate of 6.75%.

One bond trader said the 20-year papers may fetch an average rate from 5.125% to 5.25%, while another said its yield may fall within 5.15% to 5.3%.

“We’re expecting 5.125% to 5.25%, around the market rate given that the BSP (Bangko Sentral ng Pilipinas) is expected to cut its policy rate on the Sept. 26 meeting as well as a possible RRR cut…,” the first trader said by phone on Friday.

“It’s more of [the] market waiting… This is a test of market demand,” the trader added.

The second trader said the 20-year bonds’ rate may fall within a slightly higher range as the market is pricing in the anticipated benchmark rate cut by the central bank.

“For the 20-year auction, we expect yields to trade within 5.15% to 5.3%. Meron pa rin namang (There is still) interest in the long end but we expect the market to price in the expectation of possible action by the BSP [this] week,” the second trader said on Friday.

The government fully awarded P20-billion worth of the reissued 20-year papers when they were offered last July 30. The bonds fetched an average rate of 5.015% at that auction, 15.5 basis points (bp) lower than the 5.17% quoted when the debt papers were offered on June 11. Total bids reached P29.814 billion.

Meanwhile, at the secondary market on Friday, the 20-year bonds were quoted at 5.201%, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

The BSP’s Monetary Board will meet to revisit policy settings on Thursday.

The central bank has cut rates by a total of 50 bps this year — by 25 bps each last May 9 and Aug. 8 — to 4.25% for the overnight reverse repurchase rate, 4.75% for overnight lending and 3.75% for overnight deposit, partially dialing back the 175-bp cumulative hikes triggered last year by successive multi-year high inflation that peaked at a nine-year high.

BSP Governor Benjamin E. Diokno earlier said the central bank’s plan to cut interest rates anew “won’t reach November.”

Mr. Diokno has said the central bank is looking to cut policy rates by another 25 bps as well as slash big banks’ RRR before the year ends.

Currently, the RRR is at 16% for big banks and six percent for thrift banks following the phased 200-bp cut implemented after an off-cycle meeting last May. The reserve ratio of rural and cooperative lenders was also cut to four percent from five percent effective May 31.

Last week, Mr. Diokno said the BSP may cut big banks’ reserve ratio by another 100 bps before the year ends.

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

It wants 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