RATES OF government securities on offer this week will likely decline on the back of the recent policy rate cut from the local central bank as well as anticipation of a possible reduction in banks’ reserve requirement ratio (RRR).
The Bureau of the Treasury (BTr) is offering P15-billion worth of Treasury bills (T-bill) on Tuesday, broken down into P4 billion and P5 billion via three- and six-month papers, respectively, and P6 billion from the one-year debt papers.
The BTr will also offer on Wednesday reissued seven-year Treasury bonds (T-bond) worth P20 billion. The bonds have a remaining life of six years and nine months.
Bond traders said rates of the T-bills to be auctioned off on Tuesday will likely decline by 5-10 basis points (bp) from rates fetched the previous offering.
Last week, the government made a full award of the debt notes it placed on the auction block, borrowing P15 billion as planned. Yields on the three-month, six-month and one-year papers slid to 5.438%, 5.825% and 5.977%, respectively.
At the secondary market on Friday, the 91-, 182- and 364-day securities were quoted at 5.691%, 5.962% and 6.102%, respectively, according to the PHP Bloomberg Valuation (BVAL) Service Reference Rates published on the Philippine Dealing System’s website.
“Rates of T-bills for auction will move lower from previous auction. Demand may be evident across all three tenors in response to Monetary Board’s (MB) decision to cut policy rates,” Robinsons Bank Corp. trader Kevin S. Palma said in a phone message on Friday.
The Bangko Sentral ng Pilipinas (BSP) on Thursday trimmed benchmark interest rates by 25 bps to a 4-5% range, taking into consideration the “manageable” inflation outlook on the back of a “decline in food prices amid improved supply conditions.”
Headline inflation continued to ease for the sixth straight month in April to 3%, slower than the 3.3% recorded in March and beating market consensus.
At its Thursday policy review, the central bank also adjusted its inflation forecast to 2.9% this year and 3.1% in 2020, from the previous 3% for both years.
“Of course, the market will price in the recent policy rate cut of the BSP. Yields will be lower because it will be aligned with the BSP rates,” another trader said in a phone interview.
Meanwhile, for the reissued seven-year bonds, both traders expect the average rate to settle between 5.7% and 5.8%.
The government made a full award of the seven-year T-bonds when they were last offered on March 26, borrowing P20 billion as planned versus bids totalling P73.685 billion.
The bonds fetched an average rate of 5.934%, lower than the 6.087% fetched when the debt papers were previously issued the month prior and the 6.25% coupon.
Based on the PHP BVAL Service Reference Rates, the yield on the seven-year bonds ended at 5.741% last Friday.
“Yields [on] the seven-year paper…would be much lower versus the last time it was auctioned in March. A lot of bond-friendly catalysts have already happened since the last seven-year auction which caused local bond yields to ease down,” Mr. Palma said.
Both traders added that the market is anticipating a reduction in big banks’ RRR.
Although the central bank made no reduction in reserve ratio last Thursday, BSP Governor Benjamin E. Diokno said it will be “on the agenda” of the MB’s meeting this week.
Currently, universal and commercial banks are required to keep at least 18% of their total deposits with the BSP. Trimming the RRR is expected to unleash about P90 billion into the financial system, which can used for loans or investments.
Mr. Diokno previously described big banks’ RRR, which was already reduced by a total of two percentage points last year, as “really high.” He also cited “room for…one percentage point (cut) every quarter for the next four quarters.”
The government plans to borrow P315 billion from the domestic market this quarter, broken down into P195 billion in T-bills and P120 billion through Treasury bonds.
It is looking to raise some P1.189 trillion in funds this year from local and foreign sources to finance its budget deficit, which is expected to widen to as much as 3.2% of the country’s gross domestic product. — Karl Angelo N. Vidal