THE GOVERNMENT made a full award of reissued 10-year Treasury bonds (T-bond) on offer on Tuesday amid overwhelming demand as investors positioned ahead of the first tranche of cuts in banks’ reserve requirement ratios (RRR).
The Bureau of the Treasury (BTr) raised P20 billion as planned from its T-bond offer yesterday after receiving tenders amounting to P65.84 billion, more than thrice the amount it wanted to offer.
The 10-year debt notes, which carry a coupon of 6.875%, fetched an average rate of 5.644%, 31 basis points lower than the 5.954% fetched when the bonds were last offered on April 11.
At the secondary market, the 10-year IOUs were quoted at 5.65% yesterday, based on the PHP Bloomberg Valuation Service Reference Rates.
Following the auction, Deputy Treasurer Erwin D. Sta. Ana said the BTr saw “great” results as the bond offering was thrice oversubscribed, with the rate also declining.
“This is basically positioning, I think, in anticipation of the first cut by the end of the week, so obviously there is ample liquidity in the system,” Mr. Sta. Ana told reporters yesterday.
The Bangko Sentral ng Pilipinas (BSP) will slash the RRR of lenders by a percentage point effective May 31 to 17% for universal and commercial banks, 7% for thrift banks, and 4% for rural and cooperative banks.
The central bank has said that a percentage point cut in big banks’ RRR will unleash P90-100 billion into the financial system, while another P22 billion is seen to be released due to a 100-basis-point cut in the reserve ratios of smaller lenders.
“They are opting to park funds in government securities. Of course we cannot deny the fact that the inflation environment is very much contained at this point. That’s where the demand is coming from,” Mr. Sta. Ana added.
Looking ahead, he added that there is “strong case” for further reductions in interest rates.
“That is what Treasurer Lea (Rosalia V. De Leon) has been saying all along, because of easing inflation, there’s injection of liquidity, so there could be some further decline in rates,” Mr. Sta. Ana noted.
Sought for comment, Robinsons Bank Corp. trader Kevin S. Palma said the market continued to show appetite for bonds as reflected in the very strong subscription.
“The strong turnout and lower average yield may be attributed to how the BSP acted with conviction with regards to the RRR and policy rates,” he said.
“The local bond market continued to shadow US Treasury yields which dropped to lowest levels since 2017 amidst the US and China dispute.”
The government plans to borrow P315 billion from the domestic market this quarter, broken down into P195 billion in Treasury bills and P120 billion in T-bonds.
It is looking to borrow some 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 the country’s gross domestic product. — Karl Angelo N. Vidal