Rates of T-bills, bonds to move sideways on steady BSP policy

RATES OF government securities to be auctioned off this week will likely move sideways after the central bank kept borrowing costs at record lows at its latest policy meeting.

The Bureau of the Treasury (BTr) is looking to borrow P15 billion via the Treasury bills (T-bills) on Monday, broken down into P5 billion each from the 91-, 182- and 364-day papers.

On Tuesday, the Treasury will auction off P35 billion in reissued 20-year Treasury bonds (T-bonds), which have a remaining life of 11 years and eight months.

Traders said they expect the rates of the T-bills to move sideways or inch lower by 5 basis points (bps) on Monday from the yields quoted at last week’s auction.

“T-bill yields will just move sideways from the previous auction. Strong demand will persist as the market is still very much awash with liquidity and some players opt to park their funds on the short end of the curve while waiting for firm developments,” the first trader said.

Meanwhile, the first trader expects the reissued 20-year notes’ average rate to fall within 4% to 4.25%, while a second trader gave a narrower forecast range of 4.1%-4.25%.

“The 11-year reissuance is also expected to be met with strong demand as yield hunters are in this segment of the curve at the moment as inflation fears ebb,” the first trader noted.

The second trader said the market will also price in the Bangko Sentral ng Pilipinas’ (BSP) decision to keep benchmark rates steady to support the economy’s recovery.

The BSP kept its key interest rate at a record low for a fifth straight meeting on Thursday, as it vowed to maintain an accommodative stance to boost the economy.

The central bank left the rate on the overnight reverse repurchase facility at 2%, as expected by 14 of 16 analysts in a BusinessWorld poll. Interest rates on the overnight deposit and lending facilities were also kept at 1.5% and 2.5%, respectively.

At that meeting, the central bank raised its inflation outlook for this year to 4% from the previous forecast of 3.9%. This matches the upper end of the BSP’s 2-4% target.

If realized, this would be faster than the 2.6% logged in 2020.

On the other hand, inflation is expected to average 3% for 2022 and 2023.

Headline inflation stood at 4.5% for the third straight month in May. Inflation for the first five months of the year averaged 4.4%.

The second trader added that rates of government securities will also track US Treasury yields ahead of the release of June inflation data on July 6.

The rate of the benchmark 10-year US Treasuries inched up to 1.54% on Friday from 1.5% a week ago.

The BTr last week upsized the volume of T-bills it awarded to P17 billion from the original P15-billion program as total bids reached P59.064 billion or nearly four times the offered amount.

Broken down, it borrowed P5 billion as planned from the 91-day paper at an average rate of 1.078%, lower by 4 bps than the 1.118% logged in the June 14 auction.

The Treasury also made a full P5-billion award of the 182-day papers. The average rate for the tenor stood at 1.348%, down by 2.4 bps from 1.372% previously.

Lastly, the government raised P7 billion via the 364-day securities, higher than the P5-billion plan. The one-year T-bills were quoted at an average rate of 1.563%, declining by 1.4 bps from 1.577% in the previous week’s offering.

Meanwhile, the 20-year T-bonds on offer on Tuesday have not been reissued since its maiden issuance on March 21, 2013. At that auction, the BTr raised P25 billion as bids reached P118.33 billion and the notes fetched a coupon rate of 3.635%.

At the secondary market on Friday, the 91-, 182- and 364-day T-bills were quoted at 1.822%, 1.4173%, and 1.6286%, respectively, based on the PHL Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website. Meanwhile, the 20-year paper fetched 4.9578%, while the 10-year T-bond — the closest benchmark tenor to the remaining life of the bond series on offer on Tuesday — was quoted at 3.8962%.

This week’s auctions of government debt are the last ones for June. The BTr wants to borrow P215 billion from the local debt market this month: P75 billion via weekly offers of T-bills and P140 billion from weekly auctions of T-bonds.

Next month, the Treasury is programmed to raise P235 billion from the local market.

The government wants to borrow P3 trillion from domestic and external sources this year to help fund a budget deficit seen to hit 9.3% of gross domestic product. — L.W.T. Noble