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Seven-year bonds fully awarded on strong demand after rate cut

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THE GOVERNMENT fully awarded the reissued seven-year Treasury bonds (T-bond) it offered yesterday amid overwhelming demand as the market continued to react to the rate cut implemented by the central bank last week.

The Bureau of the Treasury (BTr) raised P20 billion as planned from its T-bond offer yesterday after receiving bids totalling P51.278 billion, more than twice the amount the government wanted to borrow.

The seven-year papers, which carry a coupon rate of 6.25%, fetched an average rate of 5.743%, 19.1 basis points (bp) lower than the 5.934% fetched when the debt papers were last offered on March 26. The bonds have a remaining life of six years and nine months.

Market players asked for returns ranging from 5.724% to 5.75% yesterday.

At the secondary market, the seven-year papers were quoted at 5.742% yesterday, based on the PHP Bloomberg Valuation Service Reference Rates.

Deputy Treasurer Erwin D. Sta. Ana said the government saw a “good turnout” at yesterday’s auction as it saw huge demand from investors, prompting them to price the reissued bonds lower than the rate quoted the previous offer.




“Obviously, this is still an offshoot of the rate cut last week and…the easing inflation picture as projected by the central bank. We are still riding on that data point,” Mr. Sta. Ana told reporters on Wednesday.

The Bangko Sentral ng Pilipinas (BSP) last week trimmed benchmark interest rates by 25 bps to a 4-5% range, citing a “manageable” inflation outlook on the back of a decline in food prices amid improved supply conditions.

Headline inflation continued to ease for the sixth straight month in April to 3%, slower than the 3.3% recorded in March and beating market consensus.

At its last week’s policy review, the BSP also adjusted its inflation forecast to 2.9% this year and 3.1% in 2020 from the previous 3% for both years.

Kevin S. Palma, Robinsons Bank Corp. trader, said the results were within market expectations and just in line with secondary market rates prior to the auction.

“Lower average rate versus its last seven-year auction reflects recent bond-friendly developments such as easing inflation, the credit (rating) upgrade and BSP’s policy rate cut,” Mr. Palma said in a phone message.

He added that the “stellar” turnout was boosted by continued anticipation of a cut in big banks’ reserve requirement ratio (RRR) as soon as the Monetary Board’s (MB) May 16 meeting.

The central bank made no reduction in banks’ reserve ratio during its policy meeting last week, although the BSP Governor Benjamin E. Diokno said it will be “on the agenda” of the MB’s meeting this week.

Currently, universal and commercial banks are required to keep at least 18% of their total deposits with the BSP. Trimming the RRR is expected to unleash about P90 billion into the financial system, which can used for loans or investments.

Mr. Diokno previously described big banks’ RRR, which was already reduced by a total of two percentage points last year, as “really high.” He also cited “room for…one percentage point (cut) every quarter for the next four quarters.”

The government plans to borrow P315 billion from the domestic market this quarter, broken down into P195 billion in Treasury bills and P120 billion through T-bonds. — Karl Angelo N. Vidal