Treasury bonds to fetch lower yields on demand
By Melissa Luz T. Lopez
Senior Reporter
TREASURY BONDS (T-bonds) on offer this week would likely see yields trend lower amid strong demand, with the government seen to make the award ahead of an expected unwinding of bond holdings in the United States.
Two traders interviewed late last week said the Bureau of the Treasury’s offering of reissued seven-year T-bonds tomorrow will likely receive tenders at least 1.5 times the P15 billion to be auctioned off.
The government is looking to reissue the debt papers which were first auctioned off on April 20, where it fetched a 4.5% coupon rate. The notes on offer will mature in April 2024, with a remaining life of six years and eight months.
One trader said demand will be “good” given that the seven-year tenor is not too long, compared to the government’s offering of 20-year notes which fetched weak demand and higher rates sought by market players.
The trader added that there are now muted fears of a fresh rate hike in the US, which will bolster investor appetite for the peso-denominated debt papers.
“Recent data from US are usually lower than expected and there’s no worry for inflation yet. They’re looking at a rate hike by the end of year, some even considering that it will be next year,” the trader said, referring to expectations of policy tightening by the Federal Reserve.
Rates are also expected to have a lower bias as it is seen to track the downward movements US Treasuries, the trader said, noting that only an extremely high turnout of the latest jobs data could drive yields higher.
Latest non-farm payrolls data released by the US Labor department showed that 209,000 jobs were created last month, against market expectations of 180,000, Reuters said in a report, bolstering the case for future Fed hikes.
The Treasury last dangled seven-year T-bonds on May 30, where it only raised P4.026 billion of the P15 billion it placed on the auction block. It was met with sluggish demand at only P12.851 billion and fetched a higher average rate at 4.519% from 4.484% previously.
The first trader said he expects yields to range between 4.4-4.5%, while another sees rates logging within 4.4-4.55%. Seven-year bonds fetched a 4.7786% rate at the secondary market as of Friday afternoon, lower than the 4.7954% quoted the previous day.
A second trader also expects yields to drop this week, which opens the chance for the government to possibly make a full award.
“The Treasury will not reject the offers because as we all know, the Fed will be unwinding its bond portfolio, so they will take advantage and maximize that,” the trader said in a phone interview, referring to the Fed’s plans to reduce its $4.2-trillion stash of bonds and securities expected by September.
The government is looking to borrow as much as P195 billion from domestic sources this quarter through offerings of P105 billion worth of T-bills and P90 billion in Treasury bonds — more than the P180 billion programmed in the second quarter.
