Yields flat ahead of RTBs

By Christine J.S. Castañeda
Senior Researcher
YIELDS on government securities (GS) were flat last week ahead of the government’s retail Treasury bond (RTB) offering.
On average, GS yields — which move opposite to prices — were up by 2.62 basis points (bp) week on week, according to the PHP Bloomberg Valuation Service Reference Rates as of Feb.22 published on the Philippine Dealing System’s website.
“Government securities yields ended mixed [last] week with some securities ending the week slightly higher, and others slightly lower, presumably due to the announcement of the five-year retail Treasury bond to be priced [tomorrow], with settlement date on March 12,” Carlyn Therese X. Dulay, first vice-president and head of Institutional Sales at Security Bank Corp., said.
She said the market expects yields on the RTBs to settle between 6.125% and 6.25%.
Nicholas Antonio T. Mapa, senior economist at ING Bank N.V. Manila, shared this view, saying: “Market players were cautious for most of the week, wary about fresh supply given the possible RTB.”
In addition to the scheduled RTB offering, Michael L. Ricafort, economist at the Rizal Commercial Banking Corp. (RCBC), also attributed the slightly higher yields to “…wider budget deficit data for 2018 at -3.2% of GDP (gross domestic product) that exceeded the target of -3% amid increased government spending especially on infrastructure, somewhat hawkish signals from local monetary authorities on any possible cut in policy rates especially if inflation remains above the 2%-4% target, higher global oil prices hovering recently among the highest levels in about three months that led to some upward adjustments in local fuel pump prices…”
In an announcement posted on its website, the Bureau of the Treasury said it will offer peso-denominated five-year RTBs worth P30 billion starting tomorrow until March 8. This will be the first RTB offering for 2019 and the 22nd issuance overall.
On the other hand, the national government’s fiscal position posted a P558.3-billion shortfall last year, or 3.2% of the country’s GDP, data from the Treasury showed. This was wider than the P350.6-billion deficit in the 2017, and was higher than the P523.7 billion programmed for the year.
At the close of trading on Friday, yields on the 91- and 182-day Treasury bills (T-bill) went up by 6.3 bps and 1.9 bps, respectively, to 5.571% and 5.915%, while 364-day T-bill dipped by 2.2 bps to close at 6.097%.
At the belly of the curve, the two-, three- and four-year debt papers were quoted at 6.039%, 6.068%, and 6.096%, respectively, which were 2.4 bps, 4.3 bps, and 5.1 bps higher than the rates seen the previous week. Yields on the five- and seven-year bonds also rose by 4.4 bps and 0.4 bp, respectively, to 6.127% and 6.201%.
Yields on the 20-, and 25-year bonds also went up 0.5 bp (6.651%) and 8.8 bps (6.797%), while the 10-year paper declined by 3.1 bps (6.280%).
Looking forward, ING Bank’s Mr. Mapa said: “Market will take its cue from the RTB [this] week and inflation in the first week of March.”
“For [this] week, local benchmark interest rates could be steady to slightly higher amid the RTB auction that fundamental increases new supply of local fixed income securities and could somewhat fundamentally siphon off some excess funds from the market, including about P70 billion Treasury bonds that matured on Feb. 19, 2019,” RCBC’s Mr. Ricafort said.
“However, offsetting positive factors that could somewhat limit any further healthy/slight upward correction in local interest rate benchmarks, at the very least, may include market anticipation for the latest local inflation figure…,” he added.
February inflation data will be released by the Philippine Statistics Authority on March 5.