PH 3-year T-bond rate declines

MANILA — Higher liquidity situation because of cuts in banks’ reserve requirement ratio (RRR) resulted in the decline of the interest rate of government-issued three-year Treasury bond (T-bond) Tuesday.

The rate of the debt paper slipped to 3.724 percent from 3.996 percent the same tenor fetched during an auction last October 1.

The Bureau of the Treasury (BTr) offered it for PHP20 billion but tenders reached PHP59.666 billion.

National Treasurer Rosalia de Leon attributed the strong demand for the T-bond to the high liquidity situation, with the last 100 basis points slash in banks’ RRR being implemented this month.

She told journalists after the auction that the RRR cut was expected to inject about PHP100 billion into the system.

Aside from the additional liquidity, she said banks “are trying to already to finish the year in terms of placements.”

De Leon also cited that banks would gain from the issuance due to the difference between the average rate and the coupon rate of 4.75 percent.

She said banks are also expecting the possibility of another slash in the Bangko Sentral ng Pilipinas’ (BSP) key policy rates during the last rate-setting meeting of the central bank’s policy-making Monetary Board (MB) on December 12.

This, after BSP Governor Benjamin Diokno indicated the possibility of an additional rate cut on top of the 75 basis points reduction to date vis-à-vis the inflation rate developments.

The rate of price increases, which peaked at 6.7 percent from September to October 2018, sustained its decline until October this year to 0.8 percent.

It registered upticks last May to 3.2 percent from month-ago’s 3 percent and last November to 1.3 percent from the previous month’s 0.8 percent.

De Leon said given the latest demand on debt papers, she is hopeful this development continues with demand seen to remain strong “up to the belly of the curve.”

“That’s the sweet spot right now and that’s what we saw also in this auction,” she said.

Meanwhile, de Leon discounts any US dollar-denominated issuance for the government in January thus far, saying they are still studying this option.

In the past, the government issues dollar-denominated Republic of the Philippines (ROP) bond at the start of the year to help finance its requirements.