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Treasury bills to fetch lower rates on demand for safe-haven assets

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RATES OF Treasury bills (T-bills) on offer this week will likely decline on inflation data and as investors continue to park their funds in short-term safe-haven assets.

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

On Tuesday, BTr will auction off P15 billion via 35-day T-bills.

Security Bank First Vice-President and Head of Wholesale Treasury Sales Sales Carlyn Therese X. Dulay expects yields on the short-term papers to decline on the back of strong demand.

“We may continue to see strong support from market participants in the short end in the coming weeks as the market remains awash with liquidity,” Ms. Dulay said via e-mail on Thursday.

The Treasury upsized the volume of T-bills it awarded on April 27 to P24 billion from the P20-billion program after total bids hit P91 billion. It also opened the tap facility to raise another P10 billion via the one-year papers.

Broken down, it raised P7 billion via 91-day papers versus the original P5-billion offer as the average rate dropped 49.6 basis points (bps) to 2.617% from the previous rate of 3.113% on April 20.

It also upsized the volume of 182-day T-bills awarded to P7 billion from its plan to raise P5 billion. The six-month papers fetched an average rate of 2.831%, down 40.8 bps from 3.239% previously.

The BTr also fully awarded P10-billion worth of 364-day papers at an average rate of 3.054%, lower by 24.1 bps from 3.295% previously.

For the 35-day papers, Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said the tenor could fetch yields 10 bps lower than the previous auction, while Ms. Dulay projects its rate to settle within the 2.3-2.5% range.

The government made a full award of the P15-billion in 35-day T-bills it offered on April 21 from total tenders of P62.2 billion, with the average rate declining to 2.714%. It also raised another P10 billion via the tap facility.

At the secondary market, rates for the three-month, six-month and one-year papers stood at 2.974%, 3.064% and 3.01%, respectively while the one-month T-bills were quoted at 3.02%.

Mr. Ricafort said rates could decline in anticipation of further monetary easing from the Bangko Sentral ng Pilipinas (BSP) on slower inflation driven by plunging global oil prices.

“Major catalysts/leads include expectations of further cut/s in the local policy rates and banks’ RRR (reserve requirement ratio) amid the sharp decline in global oil prices recently, to the lowest levels in nearly 20 years, that could further lower inflation. Inflation is widely expected to ease amid the recent declines in global oil prices to 18-year lows and strongest peso exchange rate in more than 2 years,” he said via Viber on Saturday.

The Philippine Statistics Authority will report April inflation data on May 5.

BSP Governor Benjamin E. Diokno last week said headline inflation in April likely settled between 1.9% and 2.7%, slower compared to 2.5% seen in March which was already down from the 2.6% recorded in February.

The BSP targets 2-4% inflation this year, projecting it to average at two percent.

Security Bank’s Ms. Dulay said they expect “decent to strong” demand for the short-term papers to continue in the medium term and see more successful auctions for these instruments following hints of further policy easing from the central bank in the second half.

“We see risk taking in the belly to the long-end slowing down slightly as it has already moved 200 bps lower from the peak of the sell-off,” she said.

Mr. Diokno said last week monetary easing via policy rate cuts and trimming banks’ RRR are still on the agenda to cushion the economy from the impact of the virus.

The BSP cut interest rates by 50 bps in an off-cycle meeting last April 16 to bring down the rates on the overnight reverse repurchase, deposit and lending facilities to 2.75%, 3.25% and 2.25%, respectively.

It also injected fresh liquidity into the system as it trimmed universal and commercial banks’ reserve requirement ratio by 200 bps to 12%.

For this month, the government is planning to borrow P170 billion from the local market. The Treasury wants to raise P110 billion via its weekly T-bill auctions and the remaining P60 billion via Treasury bonds to be offered fortnightly. — Beatrice M. Laforga





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