Rates of T-bills, bonds may move sideways ahead of Fed meeting

RATES of government securities could move sideways this week on the flattening of the US yield curve ahead of the Federal Reserve’s policy meeting.

The Bureau of the Treasury (BTr) is looking to raise P15 billion via the Treasury bills (T-bills) it will auction off on Tuesday, or P5 billion each in 91-, 182- and 364-day debt papers.

On Wednesday, the BTr will offer P35 billion in reissued five-year Treasury bonds (T-bonds) with a remaining life of four years and five months.

A bond trader said T-bill rates could move sideways with an upward bias, while yields of the reissued five-year notes could range from 3.7% to 3.9%.

“Central bank action abroad remains the focus of many traders as rate hikes may not be so far. But the flattening of the US yield curve may put a limit on how high local yields increase. The flattening may indicate that investors think that economic recovery has reached a short-term peak,” the trader said in a Viber message.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said T-bill yields could be slightly lower, in line with a slight weekly short-term decline in local rates and most long-term yields as the anticipated resumption of negotiations on the Iran nuclear deal could ease sanctions on Iran’s oil exports.

“As a result, global oil prices corrected lower to one-week lows, down from new seven-year highs… (The) stronger peso and downward correction in global oil prices led to healthy downward correction in local and US/global bond yields, as may be reflected in the upcoming government securities auctions,” he said in a Viber message.

Mr. Ricafort said T-bond yields could also track the slight easing of secondary market rates and range around 3.7% to 3.8%.

US crude oil prices went up on Friday on expectations of maintained production cuts from petroleum exporting countries, Reuters reported, but noted that oil benchmarks declined week on week after reaching record highs on Monday.

Brent crude rose by 6 cents to $84.38, while US West Texas Intermediate crude went up 76 cents to $83.57.

Meanwhile, at the secondary market, the 91- 182- and 364-day T-bills were quoted at 1.2131%, 1.4488% and 1.6228%, respectively, while the five-year bond ended at 3.7771%, based on the PHL Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

The government made a full award of the T-bills it auctioned off last week as investors continue to prefer to park their funds in short-term papers amid inflation fears.

Broken down, the BTr raised P5 billion as planned via the 91-day debt papers from P9.3 billion in bids. The three-month T-bills fetched an average rate of 1.119%, up by 0.6 basis point (bp) from the 1.113% seen at the previous week’s offering.

The BTr also borrowed P5 billion as programmed from the 182-day securities it offered last week as bids reached P14.201 billion. The average rate of the six-month T-bills slipped 0.3 bp to 1.387% from 1.39% previously.

Lastly, the government made a full P5-billion award of the 364-day T-bills as the tenor attracted tenders worth P11.22 billion. The average yield of the one-year instruments stood at 1.606%, up by 0.2 bp from the 1.604% fetched the previous week.

Meanwhile, the last time the BTr auctioned off the reissued debt papers on offer on Wednesday was Oct. 12, when it made a full award of the P35 billion on offer from total tenders of P56.08 billion.

The five-year notes fetched an average rate of 3.576%, higher than the 2.746% recorded in the previous auction and the 3.375% coupon rate.

The BTr plans to borrow P200 billion from the domestic market in November, or P60 billion in T-bills and P140 billion in T-bonds.

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. — Jenina P. Ibañez