T-bills, T-bonds to track US rates amid Fed bets

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YIELDS on government securities on offer this week will likely end mixed as investors track the movement of US bonds and wait for the Treasury’s bond swap.

The Bureau of the Treasury plans to raise a total of P25 billion from both Treasury bonds (T-bonds) and Treasury bills (T-bills) this week.

Broken down, for the T-bills, the government will auction off P5 billion in three-month, P4 billion in six-month, and P6 billion worth of one-year papers today.

The Treasury will also raise P10 billion via reissued-year 10-year T-bonds tomorrow with a remaining life of nine years and 11 months.

A bond trader told BusinessWorld on Friday that the yield on the three-month T-bills is expected to climb by around five basis points, while the rates of the six-month and one-year papers will likely move higher by 10 basis points.

“For the 10-year [bonds], possibly the coupon rate will land within the 6-6.1% range,” the trader added.

At the secondary market on Friday, the three-month T-bill fetched a yield of 3.3716%, while the six-month and one-year papers were quoted at 3.9196% and 4.1893%, respectively.

Meanwhile, the 10-year bonds were last offered on March 20 at a 6.25% coupon rate. The yield on the 10-year bonds closed 6.05% at the secondary market on Friday.

The bond trader said the movement of US Treasuries will be a “major factor” investors will consider.

On Friday, Reuters reported that the US Treasury yield curve hit its lowest level in more than a decade as short-dated yields rose faster than the longer tenors following the expectations of further interest rate hikes from the Federal Reserve this year.

The yield gap between the five-year and the 30-year securities flattened 1.1 basis points to 36.30 basis points after hitting 35.30 basis points, its flattest level since September 2007.

Expectations for the Fed to hike its interest rates this year heightened after Boston Fed President Eric S. Rosengen suggested that the Fed could end up hiking its benchmark rates more than three times this year on the back of the robust US economy.

Meanwhile, ANZ Research said in a report that the 10-year bonds on offer tomorrow, as well as the 20-year papers to be placed on the auction block next week, “will be challenging after a partial award again” during the seven-year bond auction last week.

Last Wednesday, the Treasury bureau only awarded P7.932 billion out of the planned borrowing of P10 billion as yields spiked amid concerns over rate hikes here and in the US.

“The smaller issue size of P10 billion next Tuesday will help but the market could be focusing on the bond switch where the auction will provide pricing guidance to the switch,” ANZ said, adding that the swap is “imminent.”

“Typically, a bond switch could raise P150-200 billion. As we expected, [the Treasury] is looking for a bond switch to help fund a bond redemption of P130.5 billion, due on May 23,” ANZ Research noted.

Last Wednesday, National Treasurer Rosalia V. De Leon told reporters that the government will have an opportunity to finance the redemption requirement if there is a good window.

This quarter, the government is holding two auctions per week — one for Treasury bonds and another for Treasury bills — to reflect increased borrowing requirements for the quarter.

The government is set to raise P325 billion via the domestic market this quarter through auctions of securities.

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