BofA bullish on PH bonds
The ongoing rate-cutting cycle of the Bangko Sentral ng Pilipinas (BSP) is expected to perk up investor demand for short-dated bonds in the Philippines, though easier liquidity conditions are needed to amplify the gains, Bank of America (BofA) said.
In a note to clients, the global bank said the same dynamic is playing out in Indonesia, where further monetary easing is underway.
In the Philippines, BofA pointed to the government’s recent retail Treasury bond (T-bond) sale, which raised P507.16 billion from small investors, as evidence of “pent-up” demand that could drive a further rally this year as the BSP delivers more rate reductions.
Additional support may come if the central bank cuts back on its outstanding short-term bills, a move that would free up liquidity in the financial system.
BofA said BSP officials appeared open to investor arguments that easier liquidity and “compression of bills term” would help ensure that its rate cuts are felt more widely.
“Local bank treasuries expect the yield spread over policy rate to stabilize at wider levels compared to historical averages. One of the reasons behind that was linked to large issuance of BSP bills to absorb liquidity at wider spreads, which sets the term structure in front-end and acts as a floor for front-end T-bills due to substitution demand,” the American lender said.
“Despite the rate cuts this year, bill yields have moved little so far, which has pegged the front-end,” it added.
The government was able to raise its target amount of long-term local debts during Wednesday’s sale of dual-tranche Treasury bonds, as rates fell ahead of the next monetary policy meeting of the central bank today.
The Bureau of the Treasury borrowed P10 billion via three-year T-bonds and P25 billion via 25-year debt paper.
The shorter-dated securities attracted demand amounting to P93 billion, more than nine times the original offer. The longer-dated tranche drew bids 1.4 times the amount on sale.
The three-year debt paper fetched an average rate of 5.634 percent, lower than the previous auction and current secondary market rate. The longer-dated securities, however, were awarded at an average rate of 6.374 percent, higher than the benchmark yield.
