RATES OF government securities to be auctioned off this week will likely decline on strong demand as investors continue to flock to safe-haven assets.

The Bureau of the Treasury (BTr) is planning to borrow P20 billion via Treasury bills (T-bills) on Monday, broken down into P5 billion each in 91- and 182-day papers and P10 billion in 364-day instruments.

On Tuesday, the BTr will offer P30 billion worth of reissued seven-year T-bonds with a remaining life of two years and 11 months.

A bond trader interviewed Friday said rates of T-bills could drop by 10-20 basis points (bps) or more from the previous auction.

The Treasury increased to P24 billion the volume of T-bills it awarded last week from the P20-billion offer as rates declined across-the-board.

Broken down, it raised P7 billion each from the three- and six-month papers, higher than the programmed P5 billion, at lower average rates of 2.479% and 2.625%, respectively.

The government, meanwhile, made a full award of the P10-billion one-year T-bills it offered at an average rate of 2.945%.

For the seven-year bonds, Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said yields could decline to 3.1-3.2%, while the bond trader sees it ranging from 3.15% to 3.3%.

On Jan. 21, the BTr raised P27.2 billion in seven-year papers out of the P30-billion program as the offer was almost twice oversubscribed. The papers fetched an average rate of 4.732%.

At the secondary market on Friday, the 91-, 182- and 364-day T-bills fetched rates of 2.699%, 2.773% and 2.879%, respectively, while the yield on the seven-year IOUs was at 3.249%.

Mr. Ricafort expects strong demand for safe-haven assets like government securities to continue this week, as observed in previous auctions, which could pull rates down.

“Major catalysts/leads [also] include…stronger peso exchange rate among the best in more than two years that help lower inflation and interest rates [and] recent signals about a possible pause in monetary easing measures for now,” he said in an e-mail over the weekend.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno earlier signaled a pause in monetary easing, citing “manageable inflation environment and stable inflation expectations.”

The Monetary Board has aggressively slashed benchmark interest rates delivering a total of 125 bps in reductions to help cushion the blow of coronavirus disease 2019 pandemic on the economy.

The latest reduction was a 50-bp off-cycle cut on April 16, following the 50-bp cut in March and the 25-bp cut in February.

This brought key policy rates to record lows of 2.75% for the overnight reverse repurchase facility and 3.25% and 2.25% for the overnight lending and deposit facilities, respectively.

Mr. Ricafort added that “improvement in market sentiment” recently could help drive yields lower on expectations of easing enhanced community quarantine to a less strict general enhanced community quarantine in some parts of the country as well as the gradual relaxation of lockdown restrictions overseas.

Metro Manila and some high-risk areas have been under strict lockdown for nearly two months as the enhanced community quarantine status was extended until May 15, while some parts of the country have slowly transitioned to relaxed quarantine protocols.

The government is planning to borrow P170 billion from the local market this month, P110 billion via its weekly T-bill auctions and the remaining P60 billion via T-bonds to be offered fortnightly. — Beatrice M. Laforga