Demand for T-bills, bonds to ease

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Bureau of Treasury

By Karl Angelo N. Vidal, Reporter

YIELDS ON government securities on offer this week will likely move sideways on weak demand as the market waits for the release of inflation data expected to show a further acceleration in price increases.

The Bureau of the Treasury (BTr) is offering P15 billion worth of Treasury bills (T-bill) today. Broken down, the government plans to raise P4 billion and P5 billion through the three-and six-month papers, respectively, and another P6 billion in one-year T-bills.

The government will also offer P10 billion in reissued 10-year Treasury bonds (T-bond) with a remaining life of nine years and eight months on Tuesday.

In an interview, a trader said rates on the T-bills on auction today are expected to “move sideways from the previous auction.”

Last Monday, the Treasury decided on a partial award of the P15-billion T-bills it offered, borrowing only P11.9 billion despite the P20.3 billion tendered by investors. Rates climbed across the tenors as the 91-, 182- and 364-day papers fetched yields of 3.484%, 3.873% and 4.429%, respectively.

Meanwhile, two traders said the 10-year bond auction on Tuesday could fetch higher yields, with the rate expected to land between 6.4% and 6.6%.

In May, the government borrowed just P4.1 billion via the reissued 10-year bonds out of the P10-billion program. That auction was met with demand amounting to P13.4 billion, with the average yield on the papers standing at 6.35%.

At the secondary market on Friday, the three- and six-month papers were quoted at 3.9071% and 3.8453%, respectively, while the one-year papers were at 4.4742%.

The 10-year bonds, meanwhile, fetched 6.4217% at the market’s close.

“[There might be] less demand as investors would rather wait for [inflation] data before considering longer tenors,” the second bond trader said in a mobile text message on Friday.

A BusinessWorld poll among 12 economists yielded a median inflation forecast of 4.7% for the month of June. If realized, the inflation print will accelerate from May’s 4.6% figure to a fresh five-year high.

The 4.7% consensus falls in the middle of the Bangko Sentral ng Pilipinas’ 4.3-5.1% estimate given last Friday.

Analysts said inflation will accelerate a tad versus the previous month due to higher food and oil prices, although this was offset by easing electricity rates.

“Inflation expectation will affect the pricing, although the auctions will happen before the announcement,” the first trader said.

The trader added that eligible dealers will also price in their expectations of another rate hike from the local and US central banks, as well as the continued depreciation of the peso against the dollar.

The Treasury is set to borrow P300 billion from the domestic market this quarter through auctions of securities, offering P195 billion in T-bills and another P105 billion in T-bonds.

The borrowing plan in the July-September period is lower than the P325 billion the government offered last quarter, although higher than the P195 billion it intended to borrow in the same quarter last year.

Aside from this, plans for another dollar bond float as well as yen-denominated “samurai” papers are also being finalized.

The government plans to borrow P888.23 billion this year from local and foreign sources to fund its budget deficit, which is capped at 3% of the country’s gross domestic product.