RATES OF THE government debt on offer this week will likely decline further amid healthy demand after the central bank trimmed the reserve requirement ratio (RRR) for both commercial and thrift banks.
The Bureau of the Treasury (BTr) is offering P15 billion worth of Treasury bills (T-bill) today, broken down into P4 billion and P5 billion for the three- and six-month instruments, respectively, and P6 billion in one-year papers.
The BTr will also offer on Tuesday reissued 10-year Treasury bonds (T-bond) amounting to P20 billion with a remaining life of nine years and seven months.
Two traders said the rates of the T-bills will move lower by five to 10 basis points (bp) across all tenors from the previous auction.
Last week, the Treasury borrowed P15 billion as planned at its T-bills auction. Total bids reached P50.3 billion, more than thrice the amount it wanted to raise. Yields on the 90-, 182- and 364-day papers slipped to 5.258%, 5.7% and 5.869%, respectively.
Based on the PHP Bloomberg Valuation Service Reference Rates, the three-month, six-month and one-year papers were quoted at 5.359%, 5.694% and 5.895% on Friday.
“Strong demand may persist across the offering as dealers and investors alike are expected to position ahead of the first tranche of the RRR cut effective May 31,” Robinsons Bank Corp. trader Kevin S. Palma said in a Viber message.
The Bangko Sentral ng Pilipinas will slash reserve requirements of lenders by a percentage point effective May 31 to 17% for universal and commercial banks, 7% for thrift banks, and 4% for rural and cooperative banks.
A percentage point cut in big banks’ RRR will likely unleash P90-100 billion into the financial system, while another P22 billion is seen to be released due to a 100-basis-point cut in the reserve ratios of smaller lenders.
“We expect that by next week, the market will price in the expectation of additional funds,” a bond trader said in a phone interview.
For the 10-year bonds, the trader said its rate will likely range between 5.65-5.7%, which if realized will be lower than the average rate fetched when the papers were last offered in April.
The government borrowed P15 billion as planned via reissued 10-year bonds on April 11, receiving bids totalling P46.468 billion. The 10-year debt notes, which carry a coupon rate of 6.875%, fetched an average yield of 5.954% at that auction.
At the secondary market on Friday, the 10-year papers were quoted at 5.709%.
“Average yield is expected to land within 5.675% to 5.725%,” Robinsons Bank’s Mr. Palma said.
“Market could track lower US Treasury yields which dipped to levels not seen since December 2017 after FOMC (Federal Open Market Committee) minutes reflected that the Fed (US Federal Reserve) is not so keen to be moving its rates in either direction amid the intensifying trade dispute between US and China,” he added.
The other bond trader noted that the market will flock to safer securities such as bonds as the trade spat between the world’s two largest economies intensifies. — Karl Angelo N. Vidal