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T-bills, T-bonds may fetch lower rates

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RATES OF government securities on offer this week will likely decline to follow the trend of falling yields in the market amid monetary easing, strong liquidity and plunging oil prices.

The Bureau of the Treasury (BTr) is looking to raise P20 billion in Treasury bills (T-bills) on Monday, broken down into P10 billion in 91-day papers and P5 billion each via 182- and 364-day T-bills.

On Tuesday, the BTr will offer reissued one-year Treasury bonds (T-bonds) worth P30 billion. The one-year T-bonds were first issued in 2014 and have a remaining life of 11 months and eight days. It has a coupon rate of 3.5%.

Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort expects yields on the T-bills to be “steady to slightly lower,” while a bond trader said these could dip by 10 to 20 basis points (bps).

For the one-year T-bonds, Mr. Ricafort said the rate could fall within 3.6-3.8% levels while the bond trader sees its yield settling between 3.5% and 3.7%.

At the secondary market on Friday, rates for 91-, 182- and 364-day T-bills closed at 3.293%, 3.448% and 3.717%, based on the PHP Bloomberg Valuation Service Reference Rates.

In last week’s auction, the BTr made a full award of the P20-billion T-bills it offered out of total bids worth P37.6 billion, snapping four consecutive auctions that resulted in full rejections amid soaring rates.

Broken down, it awarded P10 billion in 91-day papers out of total tenders worth P15.95 billion at an average rate of 3.413%, up 38.9 bps from the previous rate.

The government accepted P5 billion each as planned via 182- and 364-day T-bills from P10.915 billion and P10.81 billion in bids, respectively. The average rate for the six-month papers inched up 15.5 bps to 3.553%, while that for the one-year securities also rose 28.8 bps to end at 3.845%.

Mr. Ricafort said even in the secondary market, yields eased as global oil prices continue to plummet to record lows, coupled with a stronger peso.

The trader said the auctions this week could be met with strong demand across all tenors as the market remains liquid following stimulus measures from the Bangko Sentral ng Pilipinas (BSP).

“Strong demand will persist across-the-board as financial market players continue to cheer BSP’s stimulus measures. Moreover, investors continue to show appetite for short dates given the uncertainties surrounding the pandemic,” the trader said via Viber on Friday.

“We may also see some reinvestment flows from a bond maturity amounting to P120 billion on April 11,” the trader added.

Mr. Ricafort said BSP Governor Benjamin E. Diokno’s hint on another rate cut as well as easing inflation could drive yields lower in the upcoming auction.

“Local interest rate benchmarks (PHP BVAL yields) eased week-on-week and could still continue to ease amid the sharp decline in global oil prices to among the lowest in 18 years, stronger peso exchange rate vs. the US dollar among the strongest in a month and also among the strongest in 2 years, recent signals from BSP Governor Diokno about a possible cut in policy rates even before the next BSP monetary policy-setting meeting on May 21, 2020, recent easing of inflation rate to 2.5% in March 2020, reduction in the MLR (minimum liquidity ratio) to 16% (from 20%) for standalone thrift banks, rural banks, and cooperative banks,” Mr. Ricafort said in a Viber message on Saturday.

Mr. Diokno said on Sunday that as the country faces a “once-in-a-lifetime crisis” amid the coronavirus disease 2019 (COVID-19) pandemic, the BSP could slash the key policy rate — the overnight reverse repurchase rate — below 3%.

“It is now clear that reverting to where we were in 2018 — policy rate at 3.0% — is no longer an appropriate policy goal. A deeper cut is warranted in response to the expected sharp economic slowdown,” Mr. Diokno told reporters in a text message, noting that inflation is seen ending close to the lower end of the BSP’s 2-4% target for the year.

“These new realities call for bolder but appropriate moves on the part of the BSP. The challenge is to cushion the impact of the economic slowdown on people, firms and the financial system,” he said. “The monetary authorities’ job, in coordination with fiscal authorities, is to manage a ‘soft’ landing and ensure that economic takeoff begin quickly once the pandemic fades.”

The BSP has cut rates by a total of 150 bps since 2019, almost completely unwinding the 175 bps in hikes it implemented in 2018 amid multi-year high inflation.

Its latest move was 50-bp reduction last month, which brought the overnight reverse repurchase rate to 3.25% and overnight lending and deposit rates to 3.75% and 2.75%, respectively.

Meanwhile, the central bank chief said the remaining 200-bp reduction in banks’ reserve requirement ratios (RRR) is “forthcoming based on available data, the needs of the economy, and the utilization of the additional liquidity.”

The Monetary Board last month gave Mr. Diokno the authority to cut banks’ RRR by a total of 400 bps this year. Big banks’ RRR was already slashed by 200 bps to 12% as of April 3.

The Treasury has set a P190-billion local borrowing program for April, broken down into P130 billion in T-bills and P60 billion in T-bonds. — B.M. Laforga





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