T-bond yield lowest in 2 years

MANILA, Philippines — The yield for reissued 20-year Treasury bonds (T-bonds) dropped to a two-year low yesterday amid strong demand from investors, reflecting high liquidity as a result of the cut in bank’s reserve requirements, slowdown in inflation, and expected interest rate cuts, the Bureau of the Treasury (BTr) said.

During yesterday’s auction, government securities maturing in 19 years and six months fetched an average rate of 5.17 percent, a significant drop of 154.6 basis points from 6.716 percent in the auction for the same debt papers last Jan. 22.

This is likewise 24.3 basis points down from the secondary market rate (Bloomberg valuation rate) for the same securities, which stood at 5.413 percent as of 12:10 p.m. yesterday.

According to the BTr, this is the lowest average yield recorded for 20-year debt notes since June 2017, when the rate reached 5.035 percent.

The huge decline in rates prompted the auction committee of the BTr to fully award the 20-year T-bonds amounting to P20 billion.

Healthy demand met the auction, with total tenders reaching P27.292 billion. 

“It’s a very good result for us. It just shows the trend in declining interest rates,” National Deputy Treasurer Erwin Sta. Ana told reporters after the auction.

He said the results of the fund raising activity reflects the market’s appetite for the long-end of the curve amid favorable market conditions, such as ample liquidity and easing inflation.

“As already mentioned by the Treasurer, the RRR (reserve requirement ratio) cut, possible (interest) rate cut of the BSP, the trend in the US Treasuries and again, inflation, these are the reasons why we got this result,” Sta. Ana said.

Earlier, National Treasurer Rosalia De Leon said inflation is still expected to fall within the government’s target despite the slight uptick to 3.2 percent last May.

She said the first tranche of RRR cut last May 31 also contributed to demand.  De Leon said there are also expectations of interest rate cuts from the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve.