Strong demand for RTBs expected

THE THREE-YEAR retail Treasury bonds (RTB) up for auction on Wednesday is expected to see strong demand from investors supported by increased liquidity in the financial system brought by the Bangko Sentral ng Pilipinas’ (BSP) reduction of banks’ reserve requirement.

The Bureau of the Treasury ( BTr) announced on Friday that it is set to offer up to P30 billion worth of three- year debt papers to individual investors. This is the first RTB offering of the government this year, and the fourth under the administration of President Rodrigo R. Duterte.

Bond traders interviewed before the weekend said they expect strong demand for the RTBs.

“I’m expecting the [ RTB offer] to reach P200 billion,” a bond trader said in a text message, adding the RTBs may have coupon rates of 4.75%-5%.

“Investors will try to reinvest that P130 billion [ bond redemption] and P90 billion additional liquidity from reserve requirement cut,” the trader added.

The BSP announced late Thursday the reserve requirement ratio ( RRR) imposed on universal and commercial banks will be trimmed by a percentage point to 18% effective June 1. The move is expected to unlock an estimated P90 billion in additional money supply.

The RTB issuance also comes following the maturity of around P130 billion worth of previously issued peso debt notes last week.

The retail bonds will be priced on Wednesday, followed by a public offering until June 8, Friday. However, the BTr may opt to cut short the offer period as needed.

The bonds will be issued on June 13 and will mature by 2021. The Treasury added that the government “reserves the right to increase the overall size of the issue.”

Another trader expects the retail bond offer to be oversubscribed.

“I think it will be oversubscribed since P30 billion is just like a regular auction, [ and] this one is a retail treasury bond,” the bond trader said in a phone interview on Friday, adding that the rates could land between 4.75%- 4.875% range. “If we compare it from the previous RTBs, oversubscription is a possibility.”

To make way for the retail bond offering, the BTr called off its Treasury bonds auction on Tuesday. It was supposed to offer P10 billion in 20-year bonds.

However, the Treasury is still offering P15 billion worth of Treasury bills (T-bills) today, raising P5 billion and P4 billion through the three- and six-month papers, respectively, and another P6 billion in one-year T-bills.

The second trader said the bills on offer today will fetch lower yields by around five basis points across all tenors.

Even so, she added the auction might still attract strong demand as market appetite is still on the short- dated securities, boosted further by the RRR cut by the central bank.

The national government borrows from local and foreign sources to fund increased spending and boost economic activity, particularly to support the “Build, Build, Build” infrastructure program of the Duterte administration.

The government plans to borrow a total of P888.23 billion this year to plug its budget deficit that is capped at three percent of the country’s gross domestic product. —