TREASURY BILLS (T-bills) on offer today are expected to fetch lower yields, as strong demand for the shorter-tenored government securities remains amid a looming US Federal Reserve rate hike.
The government plans to raise as much as P15 billion in today’s auction of T-bills: P6 billion in 91-day debt papers, P5 billion in 182-day notes, and P4 billion in 364-day papers.
Bond traders expect the offer of the shorter-termed securities to be oversubscribed, with rates expected to drop about five basis points (bps) from the previous auction.
“It should be oversubscribed, right now for the past few months, the demand is on the short end. So I’m expecting three months, maybe two times oversubscribed; six months, at par; and the one year also at par, or maybe less,” a trader said in a phone interview.
“I’m more on the short end. Because as of now, Fed has already cleared that they will start the unwinding of their portfolio by October, and then their plans of pushing through with another hike by yearend. So most likely the demand on the 91 days if not double, I think more,” she added.
The Fed last week said it would begin the process of trimming $4.5 trillion in assets next month, and signalling that a December rate hike — which would be the third one this year — is still on the table.
Given the expected strong demand, yields should go down by five bps for the 91-day tenor, and about two to three bps lower for the six-month and one-year papers, the trader said.
“The demand should still be on the three months.”
A second trader concurred, saying in a phone interview: “We think it would go lower. It would be oversubscribed by more than two times. This is because of the appetite for shorter tenor bonds because of the outlook for higher interest rates in December and next year 2018, so the market will opt for shorter tenor.”
In the previous Sept. 11 auction, 91-day T-bills fetched a 2.088% rate, while the 182-day and 364-day papers saw average yields of 2.564% and 2.92%, respectively.
At the secondary market on Friday, the 91-day and 182-day shorter papers were quoted at 2.7589% and 2.5220%, respectively. One-year notes on the other had stood at 2.8935%.
The second trader also noted rising tensions between the US and North Korea, as leaders of both countries exchanged insults. US President Donald J. Trump had threatened to destroy North Korea, while Kim Jong-un hit back, calling the former a “mentally deranged US dotard.”
“There’s noise over geopolitical concerns with North Korea. So on the shorter securities, there’s more appetite there,” he said.
The government targets to borrow P195 billion from the domestic market this quarter by offering P105 billion worth of T-bills and P90 billion in Treasury bonds, higher than the P180 billion it wanted to raise during the second quarter. — Elijah Joseph C. Tubayan