YIELDS ON government securities (GS) edged higher last week after the Treasury rejected all bids for the 20-year papers and following investors’ reaction to its borrowing plan next month. 

GS yields, which move opposite to prices, went up by an average of 7.3 basis points (bps) week on week, according to the PHP Bloomberg Valuation Service Reference Rates as of Aug. 28 published on the Philippine Dealing System’s website.

ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said market sentiment was “defensive” at the start of the week, with investors asking for higher yields during the Bureau of the Treasury’s (BTr) reissued 20-year debt auction last Tuesday.

“Although BTr opted to reject all bids at the auction, rates adjusted higher on the back of a combination of less dovish rhetoric from the BSP (Bangko Sentral ng Pilipinas) on further policy action over the short term and speculation on possible adjustments to the BSP’s bond-buying program,” Mr. Liboro said in an e-mail.

“Local bond yields experienced some upward pressure week on week as the market reacted to the government’s borrowing plan for the year ahead where 85% of the planned funding will be sourced onshore,” Robinsons Bank Corp. peso sovereign debt trader Kevin S. Palma said in a Viber message.

“The rise in domestic yields was further compounded by higher US Treasury yields after the US Federal Reserve unveiled a major policy shift where it will consent inflation to glide higher and employment to run a little bit hotter to support the economy,” he added.

On Tuesday, The Bureau of the Treasury (BTr) rejected P46.921 billion in tenders for the reissued 20-year papers even as this was more than its plan to borrow P30 billion as market participants asked for higher yields after the central bank held benchmark rates steady on Aug. 20.

Had it made a full P30-billion award, the average rate of the notes, which have a remaining life of 12 years and seven months and carry a coupon rate of 3.635%, would have been at 3.501%, higher than the 5.341% fetched last Nov. 25 when it was last offered.

The Treasury expected the bonds to be quoted below three percent, National Treasurer Rosalia V. de Leon said.

Meanwhile, the BTr announced on Thursday a P160-billion borrowing plan for September, lower than this month’s P170-billion program.

It plans to raise P100 billion in Treasury bills (T-bills) in September via its weekly auctions of 91- and 182-day papers worth P5 billion each and one-year T-bills worth P10 billion.

The BTr will also borrow P30 billion from three-year Treasury bonds (T-bond) on Sept. 11 and another P30 billion from 10-year papers on Sept. 4.

Mr. Palma said these offerings are “relatively attractive” to dealers looking for yields.

“In terms of the issue size, it did not veer much from its usual monthly volume except that the 35-day T-bill was out of the equation,” he said.

The 35-day papers, which the Treasury had reintroduced since April to accommodate demand for shorter-termed debt, will no longer be offered in September due to the planned bond issuance of the central bank within the third quarter.

Offhand, Mr. Liboro said the announcement of three- and 10-year papers is “not particularly impactful” since the offer volumes are consistent with regular offerings, “so it’s not an increase in supply.”

“Likely see some price action around the 10-year [paper], potentially yields adjust higher prior to auction on speculation on whether the BTr will opt to award there after rejecting at the 20-year [debt] this month,” he said.

US Federal Reserve Chair Jerome Powell on Thursday also introduced a fresh strategy to allow inflation to go above the two percent target to spur economic recovery and employment before hiking rates, Reuters reported.

At the secondary market last Friday, the 91-, 182-, and 364-day T-bills saw their yields go up by 1.2 bps, 0.3 bp, and 2.8 bps, respectively, to 1.203%, 1.44%, and 1.815%.

At the belly of the yield curve, rates of the two-, three-, four-, five-, and seven-year T-bonds went up by 10.6 bps (2.118%), 13.4 bps (2.284%), 15.3 bps (2.426%), 15.5 bps (2.544%) and 13.3 bps (2.704%), respectively.

The long end of the curve ended mixed as the yield on the 10-year paper increased by 15.8 bps to 2.797%, while 20- and 25-year debt dropped by 5.8 bps (3.52%) and 2.3 bps (3.63%), respectively.

“For [this week], market may continue to be defensive given the lack of concrete direction to justify major movements,” Mr. Palma said.

“We expect the ‘lower for longer’ trend for rates to continue but see more scope for a gradual adjustment higher in the short-term,” Mr. Liboro said.

“Investors will likely be cautious [this] week and looking towards the August inflation print for more clarity,” he added.

The Philippine Statistics Authority will release the latest inflation report on Sept. 4. — Lourdes O. Pilar