YIELDS on Treasury bonds (T-bonds) on offer tomorrow may move sideways, with demand to remain healthy on the back of ample liquidity, amid geopolitical concerns offshore.
The government plans to raise as much as P15 billion in tomorrow’s auction of the reissued seven-year T-bonds with a remaining life of six years and seven months.
The T-bonds on offer tomorrow were first issued last April 20 with a coupon rate of 4.5%.
The papers were last reissued with an average yield of 4.51% following the Treasury’s Aug. 8 auction, where the government raised P15 billion as planned.
At the fixed-income exchange market on Thursday, the seven-year debt papers were last quoted at 4.426%. Local financial markets were closed last Friday in observance of Eid’l Adha.
A trader interviewed by phone on Thursday said bids by banks for the T-bonds on offer tomorrow will likely be sideways to five basis points (bps) lower.
“For this bond auction, yields will likely be sideways to five bps lower compared to the last auction since we see healthy demand as the market is still very liquid,” the trader said.
The trader added that key US labor data released over the weekend would greatly impact global yields.
“We’ll wait for the outcome of the non-farm payrolls data in the US. We expect that to highly influence yields,” the trader added.
US job growth slowed more than expected in August after two straight months of hefty increases, but the pace of gains should be more than enough for the Federal Reserve to announce a plan to start trimming a massive bond portfolio accumulated as it sought to bolster the economy.
Persistently sluggish wage growth could, however, make the US central bank cautious about raising interest rates again this year. The Labor Department said on Friday non-farm payrolls increased by 156,000 last month. The economy created 399,000 jobs in June and July.
Average hourly earnings rose three cents or 0.1% after advancing 0.3% in July, keeping the year-on-year gain in wages at 2.5% for a fifth consecutive month. Meanwhile, the unemployment rate ticked up one-tenth of a percentage point to 4.4%.
“We’ll also continue to wait for further updates on North Korea and Japan issues, if it will further elevate, but for now, recently the tension is easing. We’ll watch out for that,” the trader said.
Meanwhile, another trader said returns requested by financial institutions could remain steady or move sideways.
“We’re seeing yields to be more or less supposedly at 4.55%, which is ideal. But if it’s at 4.5% it means it’s well participated,” the second trader said by phone on Thursday.
“There’s still demand for the T-bonds, probably 1.5 times oversubscribed because it’s seven years also. Anything below 10 years there would be demand,” the trader said.
The trader added that the government’s initiatives on liquid bonds could may also affect demand tomorrow.
“The Bangko Sentral ng Pilipinas’ (BSP) recently released plan on liquid bonds is also another factor for demand on the auction because that would make the market very liquid,” the trader said. “This is a wise move since it would provide liquidity for both ends and means more participation from investors.”
Last Aug. 25, the BSP announced the government’s planned debt market reforms, which it will implement along with the Department of Finance, the Securities and Exchange Commission, and the Bureau of the Treasury. The initiatives aim to create more fund-raising platforms for the state and produce fresh money supply.
Future reforms include a permanent hike in the volume of Treasury bills and the consolidation of T-bonds into six liquid tenors, namely two, three, five, seven, 10, and 20 years.
The government is also looking to adopt common semi-annual coupon payment dates for its bonds.
Under the reforms, the government is also looking to designate market makers — or firms, like banks or brokerages, that will agree to buy or sell securities or other assets at all times to provide liquidity to markets — with concomitant obligations and privileges.
The government plans to borrow as much as P195 billion from domestic sources this quarter — through offerings of P105 billion worth of Treasury bills and P90 billion in T-bonds — more than the P180 billion programmed in the second quarter. — J.M.D. Soliman with Reuters