Three-year bonds to fetch lower rates on strong market demand

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THE RATE of the three-year Treasury bonds (T-bond) on offer tomorrow will likely decline amid persistent strong demand for short-term securities.

The Bureau of the Treasury (BTr) is offering on Tuesday P20-billion worth of fresh three-year bonds.

Kevin S. Palma, Robinsons Bank Corp. peso debt trader, expects the three-year bonds to fetch a coupon rate of 4.875%.

“(The average) rate of the three-year paper for issuance will be lower versus the last time the same tenor was auctioned in August 2018,” Mr. Palma said in a mobile phone message.

On Aug. 29, the Treasury made a full award of the reissued three-year bonds. Carrying a coupon rate of 4.25%, the debt papers fetched an average rate of 5.136%, 43.3 basis points higher from the 4.703% recorded in the previous bond auction.

At the secondary market on Friday, the three-year debt notes were quoted at 4.959%, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

“The government will likely get a healthy demand for the three-year offering as the said tenor has always been a sweet spot for investors given its modest return with a relatively short tenor,” Mr. Palma said.

He added that demand for the auction will be driven by some additional liquidity after the second phase of reserve requirement ratio (RRR) cut took effect last June 28.

After a 100-basis-point (bp) RRR cut across all banks last May 31, the Bangko Sentral ng Pilipinas trimmed the reserve ratios of universal and commercial lenders and thrift banks by another 50 bps last Friday to 16.5% and 6.5%, respectively.

“The increased liquidity from the RRR cut will be additional demand for the short tenor,” another trader said in a phone interview.

The trader added that the rate of the three-year bonds on offer tomorrow will likely settle between 4.875% and 5% as strong demand is seen to persist amid reduced auction volumes for short-term papers this quarter.

The government plans to borrow P230 billion from the domestic market from July to September, broken down into P60 billion in Treasury bills and P140 billion worth of T-bonds.

The programmed amount for this quarter is smaller than the P315 billion planned in April-June as well as the P300 billion placed on the auction block in last year’s third quarter.

The government is looking to raise P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product. Of the amount, 75% will be sourced domestically while the balance will be from foreign creditors. — Karl Angelo N. Vidal