National Treasurer Rosalia De Leon.
MANILA – The rate of Philippine government-issued seven-year Treasury bonds (T-bonds) fell 89.8 basis points on Tuesday prompting National Treasurer Rosalia de Leon to attribute the decline to expectations of cuts in interest rates here at home and in the US.
Average rate of the debt paper fell to 4.845 percent from 5.743 percent that the same tenor fetched during an auction last May 15.
The Bureau of the Treasury’s (BTr) auction committee made a full award of PHP20 billion while tenders were more than three times at PHP74.94 billion.
De Leon said there was a “one liner” in terms of rates offered by banks, which is at 4.84 percent.
She discounted collusion among banks for this development, citing that rates in the secondary market for the same tenor Tuesday morning is higher at 4.966 percent.
“We also expect that rates would be coming down given the recent developments,” he said referring to recent statements from Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno and Federal Reserve chairman Jerome Powell of possible cuts in the respective central banks’ key rates.
Diokno, for one, said the return of inflation rate to its downward path last June to 2.7 percent from month-ago’s 3.2 percent, is a factor that the Monetary Board (MB) will consider during its fifth rate-setting meet for the year on August 8.
Powell, in turn, told US lawmakers that a cut in the Fed’s key policy rates is inevitable given the weaker global output and rising trade issues.
The Federal Open Market Committee (FOMC) will have its meeting on July 30 and 31, 2019.
Aside from the rate cut expectations, De Leon said banks have lots of liquidity because of the PHP54 billion worth of maturing debt securities this week.
She said sustained drop in interest rates really depends on the domestic liquidity, which is boosted partly by the cuts in banks’ reserve requirement ratio (RRR).
She expects the drop in rates to continue since Diokno is committed to bring down the RRR to single digit, from the current 16 percent for big banks, inflows to the local equities market remains high and domestic fundamentals remains strong.
Meanwhile, the National Treasurer said they will continue to offer debt securities overseas “to maintain the present in the offshore market.”
“It’s also not good for our investors (for the Philippine government to be absent in the offshore capital market) because we also have to provide liquidity to them. You will also have to provide premium for the liquidity of the issue,” she said.
The Philippine government is planning to issue another yen-denominated Samurai bond and De Leon said they are just updating the tenors and timing of the issuance.
Earlier, De Leon said they plan to issue tenors of three-year, five- or seven-year and 10-year but cited that what is sure for now is the three-year tenor since they are still studying the demand and pricing for the other tenors.
Relatively, the Bureau of the Treasury chief said there is no plan to issue another retail treasury bond for now since the government has enough cash following the dividends submitted by government-owned and controlled corporation and the pick-up in spending.
Government spending this year started slow because of the delay in the enactment of the 2019 national budget but economic managers said they have outlined a catch-up spending plan to meet programmed spending and growth target for this year. (PNA)
