Yields on gov’t debt fall on liquidity

YIELDS at the secondary market fell slightly last week amid ample market liquidity and as the government announced it will auction off retail Treasury bonds (RTBs) this week.

Rates on government securities fell by an average of 2.23 basis points (bps) week on week, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates as of Feb. 5 published on the Philippine Dealing System’s website.

Yields on the 91-, 182-, and 364-day Treasury bills dropped by 5 bps, 5.3 bps, and 11.4 bps, respectively, from the previous week to end at 1.041%, 1.204%, and 1.416%.

Meanwhile, rates of the two-, three-, four-, and five-year Treasury bonds (T-bonds) likewise declined by 2.4 bps (to 1.783%), one basis point (2.074%), 1.4 bps (2.340%), and 1.9 bps (2.565%).

On the other hand, the yield on the seven-year paper was almost flat at 2.827%.

At the long end, the 25-year T-bond fell by 8.5 bps to yield 3.882%, while the rates of the 10- and 20-year papers increased by 8.9 bps (3.026%) and 3.1 bps (3.963%).

“Yields were lower as the [financial] system continues to be awash with liquidity. However, the yields actually closed higher compared to intra-week lows as markets digest the RTB issuance and the CPI (consumer price index) report,” a bond trader said in a Viber message.

Security Bank Corp. Chief Economist Robert Dan J. Roces, meanwhile, said the market “traded relatively flat” last week.

“There was some knee-jerk reaction when the CPI print came out before settling back,” Mr. Roces said in a Viber message.

The government will start offering three-year RTBs this week to raise at least P30 billion from the local debt market, the Treasury bureau said on Friday.

The agency said in a notice posted on its website that it would sell at least P30 billion in three-year retail bonds for three weeks starting Feb. 9 until March 4, or if closed earlier.

The bureau also opened a bond exchange offer where holders of FXTN 07-57, FXTN 10-53, RTB 03-09, RTB-10-03 and FXTN 10-55 can swap their current securities with the new retail bonds.

The government offers retail Treasury bonds annually to encourage small retail investors to invest with higher returns than prevailing market rates. These are also considered low-risk investments because they are backed by the state.

The bonds will be sold in denominations of at least P5,000, the Treasury bureau said.

The coupon will be determined during the rate-setting auction on Tuesday, and interest payments will be made quarterly.

Last year, the bureau offered retail bonds twice, raising P310.8 billion from the sale of three-year bonds in February and an all-time high of P516.3 billion from five-year securities.

Meanwhile, headline inflation quickened to 4.2% last month, faster than 3.5% in December and 2.9% a year earlier, the Philippine Statistics Authority said in a statement on Friday. It was also the fastest since 4.4% in January 2019.

January inflation exceeded the central bank’s estimate of 3.3-4.1% for the month and its 2-4% annual target.

“Expect yields to trend higher [this] week as we get more info on the RTB issuance and market will likely be on the defensive on higher CPI,” the bond trader said.

Security Bank’s Mr. Roces, meanwhile, said yields are “expected to trade sideways with an upward bias” this week. — A.O.A. Tirona