THE GOVERNMENT made a full award of the reissued Treasury bonds (T-bonds) it offered on Tuesday even as the average rate was above secondary market levels, with investors seeking to lock in higher yields ahead of an expected liquidity boost from cuts in banks’ required reserves by month-end.
The Bureau of the Treasury (BTr) raised P30 billion as planned via the reissued seven-year bonds it auctioned off on Tuesday as total bids reached P56.819 billion or almost twice the amount on offer.
This brought the total outstanding volume for the bond series to P224.7 billion, the Treasury said in a statement.
The bonds, which have a remaining life of five years and four months, were awarded at an average rate of 6.019%. Accepted bid yields ranged from 5.975% to 6.04%.
The average rate of the reissued papers was higher by 5.1 basis points (bps) from the 5.968% fetched for the series’ last award on Feb. 4 but 35.6 bps lower than the 6.375% coupon for the issue.
This was also 8.4 bps higher than the 5.935% quoted for the five-year bond — the benchmark tenor closest to the remaining life of the papers on offer — and 7.2 bps above the 5.947% seen for the same bond series at the secondary market before Tuesday’s auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.
The average rate fetched for the bonds on offer was slightly higher than market expectations amid risk-off cues overseas, a trader said in a phone interview.
Still, the auction saw strong demand as investors are loading up on higher-yielding government debt before the implementation of fresh cuts in banks’ reserve requirement ratios (RRR) by month-end, which would increase liquidity in the financial system, the trader said.
The RRR cuts are expected to free up about P330 billion in cash, which could lead to increased demand for government debt, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
By March 28, the RRR of universal and commercial banks and nonbank financial institutions with quasi-banking functions will be reduced by 200 bps to 5% from the current 7%, the Bangko Sentral ng Pilipinas (BSP) announced last month.
The RRR for digital banks will also be lowered by 150 bps to 2.5%, while the ratio for thrift lenders will be cut by 100 bps to 0%.
Rural and cooperative banks’ RRR has been at zero since October, the last time the BSP cut reserve requirements.
The RRR is the portion of reserves that banks must hold onto rather than lending out. When a bank is required to hold a lower reserve ratio, it has more funds to lend to borrowers.
BSP Governor Eli M. Remolona, Jr. has said the central bank is looking to bring down big banks’ RRR to as low as zero before his term ends in 2029.
From a high of 20% in 2018, the central bank has since brought down large banks’ reserve requirements to single-digit levels.
Meanwhile, bond yields slid on Tuesday in Asia with investors ducking for cover as new US tariffs on Canada, Mexico and China took effect, threatening to escalate global trade tensions, Reuters reported.
US President Donald J. Trump’s new 25% tariffs on goods from Mexico and Canada took effect, along with a doubling of duties on Chinese goods to 20%, at 12:01 a.m. EST (0501 GMT).
Minutes later, China said it will impose additional tariffs of 10%-15% on certain US imports from March 10. Canada has already said that retaliatory tariffs on the United States would take effect on Tuesday.
Mexico was expected to follow suit, with President Claudia Sheinbaum expected to announce her response during a morning news conference in Mexico City later on Tuesday.
Market moves were fairly muted in the immediate aftermath of the tit-for-tat tariff actions, although investors remained on edge, with worries of a wide-ranging trade war sapping sentiment.
The tariff actions led to a rally in US Treasuries. The yield, which moves inversely to bond prices, on the benchmark 10-year US Treasury note hit 4.115% in Asian hours, its lowest since Oct. 22.
The BTr is looking to raise P147 billion from the domestic market this month, or P22 billion from Treasury bills and P125 billion from T-bonds.
The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.54 trillion or 5.3% of gross domestic product this year. — Aaron Michael C. Sy with Reuters
