T-bill, T-bond rates seen sideways

YIELDS ON government securities on offer this week will likely move sideways as demand is expected to pick up amid excess liquidity in the market as inflation expectations start to “taper off.”
The Bureau of the Treasury (BTr) is offering P15 billion worth of Treasury bills (T-bill) tomorrow. Broken down, the Treasury 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 raise P15 billion via reissued three-year Treasury bonds (T-bond) with a remaining life of two years and five months on Wednesday.
Bond traders interviewed last week said rates on the T-bills on offer on Tuesday will likely move sideways from the previous auction.
The Treasury fully awarded the T-bills it auctioned off last week, borrowing P15 billion as planned versus total tenders totalling P43.1 billion.
At that auction, rates of the three-month, six-month and one-year papers declined to 3.203%, 4.064% and 4.869%, respectively.
On Friday, at the secondary market, yields on the 91-day, 182-day and 364-day papers ended at 3.65%, 4.0414% and 4.8301% respectively.
The trader added that the three-year bond auction on Wednesday could fetch a higher rate from the previous auction.
“For the T-bonds, the rate would be around 5.05% to 5.15%,” the trader said.
In May, the BTr made a full award of reissued three-year T-bonds, borrowing P10 billion out of the P19.424 billion tendered by investors.
The three-year papers fetched an average rate of 4.703%, up from the 4.632% fetched when the papers were sold in April.
“Our forecast is 4.9-5.1% as we see inflation expectations in the next few months is starting to taper off (lower),” another bond trader said in a text message.
At the secondary market on Friday, the three-year debt papers were quoted at 5.2946%.
The Bangko Sentral ng Pilipinas (BSP) said inflation will likely peak in August or September before eventually slowing down to the 2-4% target band by next year.
“Latest baseline forecasts have shifted higher over the policy horizon, suggesting that inflation will remain elevated in 2018 with the peak occurring sometime in the third quarter, and will revert to the inflation target of 2-4% in 2019,” BSP Governor Nestor A. Espenilla, Jr. said in a speech in Makati City on Aug. 14.
Last month, headline inflation accelerated to a multiyear high of 5.7%, averaging 4.5% as of end-July. Both prints are well above the higher end of the government’s target.
In response, the monetary authority fired off its strongest response in a decade, raising benchmark rates by 50 basis points earlier this month.
The trader added that the market is “still very liquid” due to the maturities the Treasury paid off recently.
The Treasury unleashed P91 billion into the financial system last week as it paid maturing debts.
The first trader noted that strong demand continues to be seen in the short end as rate hike expectations from the BSP as well as the US Federal Reserve were already priced in.
The US central bank’s Federal Open Market Committee opted to leave policy rates unchanged during its August meeting. However, the central bank is widely expected to tighten its benchmark rates next month.
In the minutes of the meeting, the participants generally expected further gradual hikes as many officials said it would likely “soon” be appropriate to raise benchmark rates.
The Treasury is raising 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 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. — Karl Angelo N. Vidal