Debt paper demand thins ahead of Lenten break

Banks continued to stay on the sidelines at the secondary market for government securities yesterday ahead of the anticipated thin trading during the forthcoming Lenten week, dealers said.

Market players said they are also waiting for more details on the central bank's plan to slash the reserve requirement on banks which should boost liquidity.

"The market's steady. There were a few deals on the seven- and 10-year bonds but rates were unchanged from yesterday. It's quiet ahead of the Holy Week break next week," said a foreign bank trader.

Another dealer at a local bank said the central bank's proposal to cut the 12-percent reserve requirement on deposit substitutes of banks will likely have a positive impact towards appetite for government securities.

"That will mean additional buying power for banks," he said, adding the additional liquidity should further pull down interest rates.

Bangko Sentral Gov. Rafael Buenaventura said Thursday the monetary authority is looking at slashing the 12 percent reserve requirement, specifically on deposit substitutes to boost liquidity in the system and discourage informal repurchase transactions among banks.

Money market dealers said there are banks that agree to buy back government securities or commercial papers they sell to clients before the maturity date of a particular instrument. The central bank requires a 12-percent reserve requirement on these deposit substitutes but dealers said most banks opt not to document these informal repurchase transactions to do away with the 12-percent requirement.

Buenaventura said reducing the required reserves will encourage banks to do the buy-back activities openly.

Treasury bill demand was similarly scant, with banks opting to wait out the weekly T-bill auction on Monday. -- Bridge News