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Yields on Treasury bills seen flat on RRR cut bets

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YIELDS ON Treasury bills (T-bills) on offer today will likely end flat after the previous offer saw strong demand from investors and following the central bank chief’s hint of another cut in banks’ reserve requirement ratios (RRR).

The Bureau of the Treasury (BTr) is looking to raise P20 billion via T-bills on Monday, broken down into P8 billion for 91-day papers, P6 billion for 182-day securities and another P6 billion for the one-year T-bills.

Sought for comment, Jose Miguel B. Liboro, head of fixed-income at ATRAM Trust Corp., said: “[L]ast week’s T-bill auction received stronger demand than previously and already saw a substantial move lower in yields. I think demand is likely to be maintained and the auctions fully awarded across tenors, especially given the recent rhetoric from the BSP (Bangko Sentral ng Pilipinas) on the possibility of further cuts to the reserve requirement rate.”

“That said, given the current level of yields, I think awarded levels will clear flat against last week since that has been where they have been trading in the secondary market,” Mr. Liboro added.

A bond trader interviewed by phone last Friday shared the same thoughts, adding that rates of the one-year and six-month papers may settle at around 3.6% or lower.

“The [BSP] governor did say that policy cuts may be enough already for this year and then only the reserve requirements na lang ang likely (may be reduced further). One-year and six months, nasa around 3.6% pa rin kasi, pwede pa din bumaba (the rate could end around 3.6% and can still go down),” the trader said.




The 100-basis-point (bp) cut on banks’ RRR effective next month coupled with a large maturity will likely push down the rates of the shorter-term debt papers further, Carlyn Therese X. Dulay, first vice-president and head of Wholesale Treasury Sales at Security Bank Corp., said.

“Expect flat to five basis points lower for the Treasury bill auction [this] week given the downward movement in yields across the board… A large maturity (FXTN 7-56) in November, as well as the good reception of the new FXTN 5-76 also contributed to the lower rates,” Ms. Dulay said in an e-mail over the weekend.

The Treasury raised P20 billion in T-bills on Oct. 8, with tenders reaching P41.7 billion or more twice than the offer.

Broken down, the government raised P8 billion as programmed via the 91-day T-bills, with total tenders reaching P14.65 billion. The debt papers fetched an average rate of 2.995%, 4.2 bps lower than the 3.037% quoted during the Sept. 16 auction.

The BTr also awarded P6 billion in 182-day securities as planned out of total bids worth P12.75 billion. The yield on the three-month papers averaged at 3.171%, down by 24.9 bps from the previous auction’s 3.42%.

For the 364-day debt papers, it also borrowed P6 billion as planned as the tenor attracted bids worth P14.276 billion. The one-year papers fetched a 3.577% average rate, 8.9 bps lower than the 3.666% seen in the last auction.

At the secondary market on Friday, the three-month, six-month and one-year papers were quoted at 3.112%, 3.270% and 3.637%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates.

BSP Governor Benjamin E. Diokno earlier said the central bank may consider another RRR cut after the cumulative 300-bp reduction for the year thus far, depending on relevant data expected to be released next month and in December.

The BSP announced last month that it will reduce lenders’ RRR by another 100 bps effective November to bring the reserve requirement of universal and commercial banks to 15% from 16%. The reserve ratios of thrift banks will also be cut to five percent from the current six percent, and to three percent from four percent for rural and cooperative banks.

The central bank last week said it will likewise cut the RRR for bonds issued by banks and quasi-banks to three percent, down by 300 bps from the current six percent, effective next month.

It said the move is “part of its commitment to contribute to deepening of the local debt market.”

On the other hand, the BSP chief said the central bank is likely done cutting policy rates for the year.

The BSP has cut benchmark rates by 75 bps thus far this year — announcing 25-bp cuts at its May 9, Aug. 8 and Sept. 26 policy meetings — to bring the interest rate on its overnight reverse repurchase facility to four percent, the overnight deposit rate to 3.5%, and the overnight lending rate to 4.5%.

These cuts partially dialed back a cumulative 175-bp increase implemented in 2018 as inflation spiked to multi-year highs.

The government is set to borrow P220 billion from the local market this quarter, broken down into P100 billion in T-bills and P120 billion via Treasury bonds.

It 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. — Beatrice M. Laforga

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