T-bill, T-bond rates seen mixed

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Bureau of Treasury (BoT)

By Karl Angelo N. Vidal

RATES OF government securities on offer this week are expected to end mixed due to expectations of a cut in banks’ reserve requirement ratio, as well as demand for fixed-income securities.

The Bureau of the Treasury (BTr) is offering P20 billion worth of Treasury bills (T-bill) today, broken down into P6 billion each for the three- and six-month instrument and another P8 billion in one-year papers.

The BTr will also offer on Tuesday reissued 10-year Treasury bonds (T-bond) with a remaining life of nine years and 10 months amounting to P20 billion.

A trader interviewed before the weekend said rates of the T-bills will likely move sideways or five basis points (bp) higher from the previous auction.

The Treasury made a partial award of the T-bills offered last week, borrowing just P3.939 billion out of its P20-billion program for Monday’s auction.

Rejecting all bids for the three-month and one-year papers, the six-month securities fetched an average yield of 5.975%, slightly lower than the 5.978% seen during the previous auction.

However, another trader said the auctions this week may fetch lower rates, projecting that the T-bills on offer will fetch rates 10 bps lower from the previous exercise.

For the T-bonds, the first trader expects it would fetch an average rate between 6.15%-6.25%, while the other gave 6.1%-6.25% range.

In January, the government made a full award of the 10-year T-bonds it placed on the auction block out of bids totalling P37.135 billion. It fetched a coupon rate of 6.8745%.

At the secondary market on Friday, the three-month, six-month and one-year papers fetched a rate of 5.434%, 5.878% and 6.08%, respectively, while the yield on the 10-year IOUs stood at 6.101%.

“The auctions this week could fetch lower rates on CPI (consumer price index) outlook and expectations of RRR (reserve requirement ratio) cut,” the second trader said in a text message on Friday.

On Wednesday, new Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said he wants to “expedite” the process of slashing reserve requirements for big banks from the current 18% as it serves as a “tax” on lenders.

However, he clarified on Friday that the RRR cut is solely his decision, saying the monetary authority’s policy “will be determined by analyses, evidence-based, and will be decided upon by the [Monetary Board].”

The central bank slashed big banks’ RRR by two percentage points in two moves last year to 16%, in line with the late BSP Governor Nestor A. Espenilla’s target to bring it down to the single-digit level by 2023.

Mr. Diokno also said the central bank can start considering cuts in policy rates.

Benchmark interest rates currently range from 4.25-5.25%, reflecting the cumulative 175-basis point increase in policy settings last year which were meant to arrest rising inflation expectations.

Meanwhile, the first trader said the T-bill and T-bond auctions may see demand twice the offered amounts on the back of strong liquidity brought by the “strong” peso and demand for fixed-income due to high yields.

The peso reeled last week, logging a 1% slump in value on Tuesday following the appointment of Mr. Diokno to take the helm of the BSP. The peso finished at a two-week low of P52.25 per dollar last Friday.

“There’s incoming demand for the 10-year bonds, so we expect it will have some effect on the yields. There might be some uptick,” the first trader said.

For this quarter, the government is planning to borrow P360 billion from the local market. Some P240 billion will be borrowed this quarter through 12 weekly T-bill auctions. On the other hand, P120 billion worth of T-bonds will also be issued through six fortnightly auctions.