GOVERNMENT securities on offer this week will likely fetch lower yields amid continued expectations of decelerating inflation.
The Bureau of the Treasury (BTr) is offering P20 billion worth of Treasury bills (T-bill) today, broken down into P6 billion each for the three- and six-month instruments and another P8 billion in one-year papers.
The BTr will also offer on Tuesday fresh 20-year Treasury bonds (T-bond) amounting to P20 billion.
“For the bills, we’re still expecting a downward bias in terms of the rates from the previous auction,” a bond trader said in a phone interview last Friday. “For the 91-day, we’re expecting five basis points (bp) lower, then 10-20 bps lower for the 182- and 364-day.”
Last week, the Treasury borrowed P22.405 billion via the T-bills, higher than its initial P20-billion program, as bids from market participants surged to P66.939 billion.
The bulk of the demand went to the longest tenor, prompting the government to double the accepted non-competitive bids for the 364-day papers.
Rates of the three-month, six-month and one-year IOUs to fetch 5.396%, 6.154% and 6.253%, respectively.
“There’s a demand for short-term bonds given the improved [consumer price index], thus the [Bangko Sentral ng Pilipinas] may not hike this year,” another trader said in a text message.
Based on the latest data, headline inflation eased to 5.1% in November from the 6% tallied a month ago, as prices of food and transportation grew at a slower pace.
For 2018, inflation averaged 5.2% — faster than the central bank’s 2-4% target range and the highest since 2008’s 8.2%.
The central bank is expecting inflation to return “to below four percent by around the end of Q1 2019,” well within its 2-4% target band.
For the T-bonds, the trader expects a coupon rate between 6.75% and 6.875%.
The government rejected all bids for its P15-billion offer of 20-year bonds when the tenor was last auctioned off last July 31, 2018.
Had the Treasury decided to accept all bids, the bonds would have fetched an average rate 7.39%, 41.1 basis points higher from the 6.979% recorded in the previous 20-year bond auction.
“I’m not really sure about the 20-year bond demand because we haven’t seen an auction in that space in months,” the second trader added.
Based on the PHP Bloomberg Valuation Service Reference Rates, the three-month and six-month papers were quoted at 5.663% and 6.103%, respectively, on Friday.
On the other hand, the rates of one-year and 20-year tenors were at 6.27% and 6.82%.
The government plans to raise P360 billion this quarter through domestic means. Some P240 billion will be borrowed through 12 weekly T-bill auctions during the three-month period, while P120-billion worth of T-bonds will also be issued through six fortnightly auctions.
The state wants to borrow P1.189 trillion in 2019 to fund its spending plans. Of the amount, 75% will be sourced domestically while the remainder will be from foreign creditors.
However, the 2019 national budget has yet to be passed by Congress and signed into law, leaving the fiscal program hanging so far. — Karl Angelo N. Vidal

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