Gov’t increases T-bill award before RTB auction

The Philippine government on Monday boosted its Treasury bill award with mostly higher rates amid strong demand before the rate-setting auction for the 30^th tranche of retail Treasury bonds (RTBs) on Tuesday.

The Bureau of the Treasury (BTr) raised PHP 17 billion from the T-bills, higher than the PHP 15-billion program as bids hit PHP 49.292 billion — more than thrice the amount on the auction block.

The Treasury fully awarded PHP 5 billion of 91-day T-bills as tenders reached PHP 10.72 billion. The three-month debt paper was quoted at an average of 5.506%, 4.5 basis points (bps) higher than last week. Accepted rates ranged from 5.475% to 5.55%.

The bureau also raised PHP 5 billion as planned from 182-day securities as bids hit PHP 15.79 billion. The average rate for the six-month T-bill was 5.861%-5.879%, up by 1.8 bps from last week, with accepted rates at 5.858% to 5.895%.

The BTr also borrowed PHP 7 billion via the 364-day debt paper, higher than the PHP 5-billion program, as demand hit PHP 22.782 billion. The average rate of the one-year T-bill fell by 1.1 bps to 6.064% from last week. Accepted yields were 6.048% to 6.075%.

The 91-, 182- and 364-day T-bills were quoted at 5.4610%, 5.8095% and 6.0577% on the secondary market on Monday before the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

Rates rose on Monday before the retail Treasury bond sale on Tuesday, which could siphon off excess peso liquidity from the financial system, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

The Treasury will hold its rate-setting auction for five-year RTBs due in 2029, from which it seeks to raise at least P30 billion.

“The higher rates continue to reflect the prospects of delayed policy rate cuts from the Bangko Sentral ng Pilipinas (BSP), while the BTr has likely opted to award larger volumes today for short-term issuances as domestic liquidity might be diverted away from the expected flows toward the upcoming RTB-30 issuance,” a trader added in an e-mail.

BSP Governor Eli M. Remolona, Jr. earlier said the central bank is unlikely to cut rates in the first half, and there is still room to raise interest rates amid risks to inflation and robust economic growth.

The Monetary Board raised borrowing costs by 450 bps from May 2022 to October 2023, bringing the policy rate to a 16-year high of 6.5%. It will decide on policy on Thursday.

Fifteen of 17 analysts in a BusinessWorld poll last week expected the Monetary Board to keep the target reverse repurchase (RRP) rate at 6.5% on Thursday.

The Treasury will cancel the auction for seven-year Treasury bonds on Tuesday due to the retail bond sale.

The bureau plans to raise PHP 210 billion from the domestic market this month — PHP 60 billion in T-bills and PHP 150 billion in T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 5.1% of gross domestic product this year or PHP 1.39 trillion.

DBP BONDS

Also on Monday, the Development Bank of the Philippines (DBP) said it had raised PHP 8.7-billion from fixed-rate Series 5 bonds due in 2025.

The state lender said there was strong demand for the debt, which was more than four times oversubscribed from the original PHP 2-billion target.

The bonds were listed on the Philippine Dealing & Exchange Corp. (PDEx) on Monday. The proceeds of the bond sale would be used for development initiatives and loans to infrastructure projects, DBP President and Chief Executive Officer Michael O. de Jesus told reporters.

China Bank Capital Corp. was the issue manager, sole arranger and bookrunner of the bond sale. It was also a selling agent, along with DBP.

The primary market has reached P82.05 billion of new listings this year, PDEx President and CEO Antonino A. Nakpil said in a speech at the enrollment ceremony for the bonds in Makati City. “This is a positive sign for the economy and bodes well for the rest of the year.”

DBP might issue another bond later this year or in early 2025, Mr. De Jesus said.

“This is not the last time that we’re going to raise bonds. We’re going back to the capital markets to raise [funds] because we need to finance our developmental projects and we’re going to remain independent,” he said in a separate speech.

DBP Senior Vice-President Mario Rey T, Morales said the bank has not decided whether it would be a vanilla, sustainable or Tier 2 bond.

The bank could also issue an environmental, social and governance (ESG) bond to fund existing and upcoming ESG projects, Mr. De Jesus said.

He added that DBP expects loans to grow by 10% this year.

“We have a lot of big deals in the pipeline, especially power projects, and also lending to local government units and infrastructure,” he said. “As in the past, it’s always selective lending. We want to make sure that these are good projects that are viable.”

Mr. De Jesus also said DBP Director Philippe G. Lo would replace Dante O. Tinga as chairman.

“The nice part is the new chairman is an existing board member so there will be less disruption,” he said. “It’s always good to have directors who are businesspeople. We want directors who understand risk because we are in the risk business.”

Mr. Tinga’s term as DBP chairman will end on June 30.

DBP’s net income rose by 60% in the first half of 2023 to PHP 4.42 billion, driven by gains from foreign exchange and the sale of properties.– Aaron Michael C. Sy, Reporter