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Gov’t securities to fetch lower rates on demand

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GOVERNMENT SECURITIES on offer this week will likely fetch lower rates amid strong demand for the debt papers and as they track the movement of US Treasuries.

The Bureau of the Treasury (BTr) is offering P15 billion worth of Treasury bills (T-bill) today, broken down into P4 billion and P5 billion for the three- and six-month instruments, respectively, and P6 billion in one-year papers.

The Treasury will also offer on Tuesday reissued 20-year Treasury bonds (T-bond) amounting to P20 billion with a remaining life of 19 years and seven months.

A bond trader said in an interview on Friday that the yields on the T-bills on offer today will likely slip by 10-15 basis points (bp) across all tenors from the previous auction.

Last week, the Treasury fully awarded the T-bills it placed on the auction block, borrowing P15 billion as planned out of tenders totalling P49.6 billion. Rates of the three-month, six-month and one-year IOUs declined to 4.992%, 5.4% and 5.498%, respectively.

At the secondary market on Friday, yields on the 91-, 182- and 364-day T-bills stood at 5.042%, 5.345% and 5.457%.




“We still see strong demand on the short end — that’s why we still expect lower yields. It will also track the US Treasuries,” the trader said.

The 10-year US Treasury yield fell to a 20-month low of 2.08% on Friday after the US Labor Department reported job creation of only 75,000 in May, way below the market consensus of 180,000.

“The market may continue to monitor the US Treasury yield movement come auction date,” Robinsons Bank Corp. peso debt trader Kevin S. Palma said in a mobile phone message Saturday.

He added that T-bill rates will likely plummet by 15-25 bps across the board to track the week-on-week drop in yields at the secondary market.

“Market has shrugged off faster-than-expected May inflation print because BSP (Bangko Sentral ng Pilipinas) Governor [Benjamin E.] Diokno was quick to address knee jerk concerns after he assured that inflation is still on a downward trend for the rest of the year,” Mr. Palma said.

Inflation last month accelerated to 3.2% from the 3% booked in April, driven by higher prices of food and non-alcoholic beverages as well as water, electricity, gas and other fuels.

Mr. Palma added that strong demand will persist on banks’ reinvestment requirements due to T-bills worth P14.3 billion maturing on June 11.

Meanwhile, for the 20-year T-bonds, he expects the average rate to settle within 5.2-5.35% — much lower than the last successful auction of the tenor — and to be in line with prevailing yields the secondary market.

The BTr did not accept any bids for its P20-billion offer of reissued 20-year bonds at an April 24 auction.

Had the Treasury made a full award, the papers would have fetched an average rate of 6.215%, down 50.1 basis points from the 6.716% fetched when the debt notes were first offered on Jan. 22 and the 6.75% coupon.

Based on the PHP Bloomberg Valuation Service Reference Rates, the 20-year bonds were quoted at 5.492% on Friday.

“Rosy Philippine economic outlook coupled with a possible [US Federal Reserve] easing as soon as fourth quarter of the year will catapult demand for this auction,” Mr. Palma said.

Meanwhile, the first trader expects the 20-year T-bonds to fetch a rate of 5.3-5.45%.

The government plans to borrow P315 billion from the domestic market this quarter, broken down into P195 billion in T-bills and P120 billion in T-bonds.

It is looking to raise some P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of the country’s gross domestic product. — Karl Angelo N. Vidal

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