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Strong demand expected for retail Treasury bonds

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By Karl Angelo N. Vidal
Reporter

RETAIL Treasury bonds (RTB) to be auctioned off today can expect strong investor demand amid additional liquidity in the market due to the government’s payment of matured debts.

The Bureau of the Treasury (BTr) announced on Thursday last week that it will offer at least P30 billion worth of five-year debt papers to individual and institutional investors. This is the first RTB offer of the government this year and the fifth under the administration of President Rodrigo R. Duterte.

Bond traders interviewed said the market can expect strong demand for the RTBs.

“There should be good demand for the RTB, given last week’s maturity and overall good CPI (consumer price index) expectations,” a trader said in a text message.

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The RTB issuance comes at a time of additional money supply in the local market following the maturity of around P70 billion worth of previously issued peso-denominated securities on Feb. 19.

The trader expects RTB coupon to land between 6.125% and 6.25%, while another gave a 6.125-6.375% range.

“… [T]here is a possibility that demand will reach P100 billion. From the previous issuances, it usually reaches P100 billion or more,” a trader said.

“It may also breach P200 billion if the rates are attractive. It all depends on the rate.”

The first trader noted that strong investor demand is expected as the market digests recent statements made by Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo.

On Tuesday last week, Mr. Guinigundo said at a seminar in Tokyo, Japan that the central bank will “have to react swiftly to maintain momentum” if liquidity “is not enough to maintain economic momentum.”

Market watchers are growing certain that the central bank will cut banks’ reserve requirement prior to any adjustments to benchmark interest rates this year.

Rizal Commercial Banking Corp. economist Michael L. Ricafort said in a mobile phone message on Monday that the BSP has consistently signalled gradual reduction in large banks’ reserve requirement ratio (RRR) to single digit levels by 2023 from 18% currently.

“This would mean an average RRR reduction of two percentage points per year until 2023,” Mr. Ricafort said.

From a high of 20%, the central bank slashed the RRR in two moves last year and now require universal and commercial banks to hold on to just 18% of their deposits, leaving them with more or less an additional P200 billion which they can lend to borrowers.

A cut in reserve requirements would unleash an additional billions of pesos into the market, which can be tapped for investments.

“Aside from the recent maturity, if there is a cut in reserves, that will be a factor in the pricing of the RTBs,” the second trader said.

“If there will be no cut in reserves, the market should be compensated with a higher rate (because) there’s a tendency that the RTB tightens the market.”

The Treasury will offer peso-denominated five-year fixed-rate debt papers to retail investors amounting to at least P30 billion.

The auction and pricing of the five-year RTBs, due 2024, has been set today, to be immediately followed by a public offering until March 8 and issue date on March 12. The Treasury may choose to cut short the offer period and increase the offer volume as needed.

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