Treasury bills, bonds may fetch higher rates as BTr adjusts plan

THE RATES of government securities on offer this week will likely rise slightly ahead of the release of May inflation data and amid increased bond supply as the Treasury is set to hold more auctions this month.

The Bureau of the Treasury (BTr) is looking to raise P15 billion via its offer of Treasury bills (T-bills) on Monday, broken down into P5 billion in 91-day debt, P5 billion in 182-day papers and another P5 billion in 364-day securities.

On Tuesday, the BTr will offer P35 billion in reissued 25-year Treasury bonds (T-bonds) with a remaining life of 19 years and three months.

Traders said the yields on the government securities on offer this week could move higher as the Treasury’s borrowing program for June showed it plans to issue more debt papers, which could cause investors to adjust their positions.

The government wants to raise P215 billion from the local debt market in June: P75 billion via weekly offers of T-bills and P140 billion from weekly auctions of T-bonds.

This is bigger than the P170-billion program for May, which was broken down into P100 billion from T-bills and P70 billion from T-bonds. The government adjusted the volume of the weekly T-bill offerings to P15 billion from P25 billion previously and scheduled a T-bond auction per week instead of fortnightly.

ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said yields on government debt could increase as the Treasury is set to hold four T-bond auctions in June, forcing investors to adjust their positions.

“BTr’s disclosure of next month’s borrowing plan signaled its desire to extend its peso debt maturity and ease debt service pressures. Best to issue long-dated securities soon before the Fed’s (US Federal Reserve) tapering discussions intensify that’s likely to generate upside pressure on US rates,” a trader said.

“Market’s apathy to long-duration will persist amid a heavy data week highlighted by May inflation. Our traders expect last week’s market preference for strong interest in the curve’s belly and below to persist while long duration starting with the [7-year] segment remains vulnerable to selling pressure,” the trader added.

The trader noted that strong demand is expected for the Treasury’s offer of reissued 25-year bonds on Tuesday “given its depleted market supply.”

The May inflation data to be released this week will also affect market sentiment and could affect the rates to be fetched at the Monday and Tuesday auctions.

Inflation likely picked up by the same pace for the third straight month in May as food prices eased while oil and utility costs caused upward pressure, analysts said.

A BusinessWorld poll of 17 analysts last week yielded a median estimate of 4.5% for May headline inflation.

If realized, this would mark the third straight month of steady inflation. However, this is beyond the BSP’s 2-4% target and is quicker than the 2.1% print recorded in the same month last year.

The Philippine Statistics Authority will report official inflation data on Friday, June 4.

The government fully awarded the T-bills it offered last week as demand for safe assets remained high amid ample liquidity in the market.

The BTr borrowed P25 billion as planned via the T-bills as total tenders reached P75.844 billion, making the offer over three times oversubscribed.

Broken down, the government raised the programmed P5 billion from the 91-day debt papers as bids for the tenor reached P16.965 billion. The three-month T-bills fetched an average rate of 1.269%, down by 0.1 basis point (bp) from the 1.27% quoted previously.

The Treasury also made a full P8-billion award of the 182-day securities as it received some P20.288 billion in tenders. The six-month T-bills fetched an average rate of 1.541%, inching up from the 1.54% seen at the previous auction.

Lastly, the government awarded P12 billion as planned in 364-day T-bills from P38.595 billion in tenders. The average yield of the one-year papers slipped by 1.4 bps to 1.796% from the 1.81% quoted at the previous offering.

The Treasury opened its tap facility to raise an additional P5 billion via the one-year tenor to accommodate the strong demand for the papers.

Meanwhile, the BTr first issued the 25-year bonds on offer on Tuesday on Sept. 9, 2015. The bonds carry a coupon of 4.625%.

The last time the government offered 20-year bonds — the closest tenor to the remaining life of the papers on the auction block on Tuesday — was in August 2020, where it rejected all bids as investors sought higher returns, pushing up the rates of the papers.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills were quoted at 1.3221%, 1.5543%, and 1.8121%, respectively, based on the PHL Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the 20-year T-bond fetched a yield of 4.9292% while the 25-year tenor was quoted at 4.9298%.

The government is looking to borrow P3 trillion this year from domestic and external sources to help fund a budget deficit seen to hit 8.9% of gross domestic product.