Yields on Treasury bills to move sideways amid lack of catalysts

By Janine Marie D. Soliman,
Reporter

YIELDS on Treasury bills (T-bills) on offer tomorrow may move sideways amid the lack of fresh leads offshore and at home, even as strong appetite is expected for the shorter-termed papers.

The government plans to raise as much as P15 billion in its auction of T-bills on Tuesday: P6 billion in 91-day debt papers, P5 billion in 182-day notes and P4 billion in 364-day papers.

A bond trader said in a phone interview over the weekend that the offer of the shorter-termed securities is expected to fetch steady to lower rates across the board compared to the previous T-bills auction.

“Yields would probably fall five basis points (bps) lower or at par, same levels compared to the previous auction,” the trader said. “We are expecting that this T-bills auction will be fully awarded.”

The government fully awarded the T-bills it auctioned off on Aug. 14 after rates requested by financial institutions slipped amid market preference for shorter tenured debt instruments brought about by geopolitical tensions abroad.

The Bureau of the Treasury raised P15 billion as planned, with investors wanting to lend as much as P32.3 billion, more than double the volume of debt papers placed on the auction book.

The 91-day T-bills were fully awarded at P6 billion, after total offers reached P16.196 billion and with the papers fetching a rate of 2.161%.

Likewise, the 182-day securities were fully awarded at P5 billion, with total bids reaching P6.179 billion. The papers were quoted at 2.677%.

Lastly, the government raised P4 billion from its 364-day debt notes after banks wanted to buy as much as P9.917 billion. The securities fetched a yield of 2.946%.

At the close of trades in the secondary market on Friday, the three-month, six-month, and one-year papers were last quoted at 2.1624%, 2.9371%, and 2.8610%, respectively.

Asked what factors would cause rates to go lower at tomorrow’s auction, the trader said: “We see demand on the short-end of the curve focused there, especially on the one-year T-bills.”

The trader said the three-month papers could be twice oversubscribed, while the 364-day debt notes may end up 1.5 times oversubscribed. However, the trader said the six-month securities could see demand at only three-fourths of the volume offered.

The trader added that the Economic Symposium in Jackson Hole, Wyoming last Friday would also have an impact on tomorrow’s auction of T-bills.

“Another factor market players are looking at is the Jackson Hole meeting. Everyone is focused on [European Central bank President Mario] Draghi and if he would stop their asset purchase,” the trader said. “Should they decide not to continue its asset purchase or reduce its assets, most likely we would see markets adjusting and higher yields globally.”

Reuters reported Mr. Draghi primarily talked about solid global recovery during last Friday’s symposium, despite some analysts expecting mentions of the strong euro zone currency.

The trader added that mixed data in the US as well as geopolitical uncertainties involving US President Donald J. Trump are also driving yields and demand on domestic and offshore treasuries.

“We have seen mixed data in the US lately and that’s more of what’s driving treasuries as well as what’s happening with Trump, where there’s not much support internally,” the trader said.

Reuters reported Mr. Trump had decided to disband the American Manufacturing Council and the Strategic and Policy Forum, raising questions on the US President’s ability to organize the business community.

Meanwhile, another trader said they see yields at tomorrow’s auction moving sideways following the peso’s recent recovery.

“We see sideways movement on yields since the dollar-peso improved and at the same time there’s a bit liquidity from the market, “ the trader said.

The peso ended at P51.08 versus the dollar on Friday, a bit lower from Thursday’s P51-to-the-dollar finish on Thursday but a rebound from its P51.49 close last Aug. 18.

“There’s demand since the market is liquid, we see all papers to be twice oversubscribed,” the trader added.

The government plans to borrow up to P180 billion locally this quarter — P90 billion each of Treasury bills and Treasury bonds — steady from the previous quarter.