Rates of T-bills, bonds to move sideways on inflation outlook

RATES of government securities on offer this week may end flat or inch higher as investors expect inflation to remain benign and as US Treasury yields rise further.

The Bureau of the Treasury (BTr) will offer P20 billion in Treasury bills (T-bills) on Monday: P5 billion each in 91-day and 182-day papers and P10 billion in 364-day securities.

On Tuesday, the government will auction off reissued 10-year Treasury bonds (T-bonds) worth P30 billion. The papers have a remaining life of four years and nine months.

A trader said T-bill rates may remain unchanged at Monday’s auction amid strong liquidity among investors.

“The market is still awash with cash. Inflation is also expected to remain within the government’s target despite a faster but still manageable rate in October,” the trader said in a text message.

Another trader said the rates of the T-bills on offer may increase slightly as more consumers are encouraged to spend with the continued gradual reopening of the economy.

The overall year-on-year increase in prices of widely used goods rose to its fastest pace in three months in October, the government reported earlier this month.

Preliminary data from the Philippine Statistics Authority (PSA) showed headline inflation at 2.5% in October, picking up from the 2.3% pace the month before.

The October inflation result marked the fastest pace in three months or since the 2.7% reading in July 2020.

The latest headline figure is higher than the 2.4% median in a BusinessWorld poll conducted late last week and falls within the 1.9-2.7% estimate given by the Bangko Sentral ng Pilipinas (BSP) for October.

Year to date, inflation settled at 2.5%, still within the BSP’s 2-4% target this year, but above its 2.3% forecast for the entire year.

Meanwhile, the second trader said the rates of the 10-year T-bonds may increase to track US Treasuries following the result of the US presidential election.

The US Treasury yield curve steepened on Friday as upbeat earnings and US President-elect Joe Biden’s COVID advisory team helped reassure investors about the threat of new pandemic-related lockdowns to combat record spikes in coronavirus infections, Reuters reported.

Mr. Biden solidified his election victory as Arizona’s 11 electoral college votes were added to his column, but the official transition remains in limbo as President Donald Trump persists with his refusal to concede.

Still, Mr. Biden’s pandemic advisory board provided a glimpse into the next president’s coronavirus plan, and said there was no plan to enact a nationwide shutdown.

US Treasury yields were mixed as investors consolidated positions ahead of the weekend and remained cautious given the surge in coronavirus cases. But the yield curve steepened on Friday, after flattening the previous session.

Benchmark 10-year notes last fell 2/32 in price to yield 0.893%, from 0.886% late on Thursday.

The 30-year bond last rose 5/32 in price to yield 1.6455%, from 1.652% late on Thursday.

The Treasury upsized its award of T-bills last week as yields declined across the board amid strong liquidity in the market.

The BTr borrowed P24 billion via the T-bills on Monday, bigger than its P20-billion program, as the offer was nearly six times oversubscribed, with bids amounting to P112.101 billion.

The government accepted more bids from non-competitive investors for the three-month and six-month tenors to take advantage of the lower yields fetched for these papers.

Broken down, the BTr awarded P7 billion in 91-day papers, higher than the P5-billion program, as tenders reached P33.058 billion. The three-month debt fetched an average rate of 1.024%, down by 3.4 basis points (bps) from the 1.058% seen in the previous auction.

The Treasury likewise awarded P7 billion in 182-day papers, more than the planned P5 billion, as bids amounted to P37.548 billion. The six-month T-bills were quoted at an average rate of 1.453%, 4.6 bps lower than the 1.499% logged in the previous offering.

Meanwhile, the government borrowed P10 billion as planned from the 364-day T-bills, with tenders reaching P41.495 billion. The one-year securities fetched an average rate of 1.745%, inching down by 1.4 bps from the 1.759% quoted in the previous week’s offering.

On the other hand, the government awarded P30 billion as planned in reissued 10-year bonds when they were last offered on Oct. 20 at an average rate of 2.782%, down from the 3.182% in the June 23 auction.

The bonds on offer were originally issued on Sept. 9, 2015 with a coupon of 3.625%.

At the secondary market on Friday, the 91-day, 182-day and 364-day T-bills were quoted at 1.104%, 1.472% and 1.768%, respectively, based on the PHL Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the five-year T-bonds — the tenor closest to the remaining life of the 10-year bonds to be offered on Tuesday — were quoted at 2.738% at the secondary market.

The Treasury plans to borrow P140 billion from the domestic market this month: P80 billion in weekly T-bill auctions and P60 billion in fortnightly Treasury bond auctions.

It is also offering another tranche of Premyo bonds to raise at least P3 billion. The offer period is set to run from Nov. 11 to Dec. 18.

Premyo bonds are part of the government’s bid to attract more small investors to invest in government securities. Last year, the BTr raised P4.961 billion from the sale of one-year peso-denominated Premyo bonds, up from its initial offer of P3 billion.

Premyo bonds are government securities that have corresponding raffle numbers for cash and non-cash prizes, aside from earning interest. The minimum investment for the bonds stands at just P500 and can be bought in multiples. One Premyo bond is equivalent to one raffle ticket.

The government wants to raise around P3 trillion this year from local and foreign lenders to help fund its budget deficit, which is expected to hit 9.6% of the country’s gross domestic product. — K.K.T. Jose with Reuters