YIELDS ON government securities (GS) at the secondary market inched down last week following the Bureau of the Treasury’s (BTr) auction of reissued 10-year bonds and announcement of its July borrowing program.

GS yields, which move opposite to prices, fell by 1.32 basis points (bps) on average week on week, based on PHP Bloomberg Valuation Service Reference Rates as of June 25 published on the Philippine Dealing System’s website.

At the short end of the yield curve, rates of the 91-, 182-, and 364-day Treasury bills (T-bills) dropped by 3.95 bps, 0.94 bp, and 0.81 bp, respectively, to 1.1822%, 1.4173%, and 1.6286%.

At the belly, yields on the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) declined by 2.54 bps (to 1.9562%), 1.86 bps (2.3587%), 2.51 bps (2.7202%), 2.82 bps (3.0387%), and 1.59 bps (3.5023%), respectively.

On the other hand, long-dated papers saw their yields inch up from a week ago. The rate of the 25-year paper went up by 1.09 bps to 4.9595%, while the yields on the 10- and 20-year T-bonds rose by 0.80 bp (to 3.8962%) and 0.64 bp (4.9578%), respectively.

“The GS curve was generally sideways [last] week with the movement largely influenced by the BTr’s reissuance of the FXTN 10-61 last Tuesday and the subsequent release of its auction schedule for July,” Philippine Bank of Communications (PBCom) Senior Trader Justin Robert G. Ladaban said in an e-mail, referring to the 10-year T-bonds auctioned off last week.

“The BSP (Bangko Sentral ng Pilipinas) decision to keep key rates unchanged was widely expected by the market, so there was hardly any reaction from there,” Mr. Ladaban added.

First Metro Asset Management, Inc. (FAMI) said investors “turned defensive” following the release of the July borrowing schedule.

“Selling ensued in liquid [five- to 10-year] securities leading to a steeper curve as yields in the belly to [the] back ended 5-9 bps higher,” FAMI said.

The Treasury borrowed P35 billion as planned via its auction of reissued 10-year T-bonds on Tuesday. Bids for the papers, which have a remaining life of five years and 10 months, stood at P65.091 billion, nearly twice as much as the auction volume and also more than the P50.25 billion in tenders seen when the same notes were last offered on March 9.

The 10-year bonds fetched an average rate of 3.185%, down by 54.7 bps from the 3.732% quoted previously. The Treasury also opened its tap facility to raise another P5 billion via the debt papers to accommodate the excess demand and take advantage of the low yield.

Meanwhile, the BTr hiked its planned borrowings from the local market to P235 billion in July as it seeks to offer longer tenors amid strong demand and a low-rate environment.

In a memorandum posted on its website on Tuesday, the BTr said it is planning to borrow P60 billion via T-bills and P175 billion from T-bonds. This is 9.3% higher than the P215-billion borrowing plan in June, which consists of P75 billion in T-bills and P140 billion in T-bonds.

For next month, the BTr will offer P5 billion each via the 91-, 182-, and 364-day T-bills every Monday.

It will also hold auctions of the P35 billion in T-bonds every Tuesday. It will offer 11-year bonds on June 29; seven-year papers on July 6 and July 27; 20-year notes on July 13 and 10-year securities on July 20.

On the other hand, the BSP kept its key interest rate at a record low for a fifth straight meeting on Thursday, as it vowed to maintain an accommodative stance to support economic recovery.

The BSP left the rate on the overnight reverse repurchase facility at 2%, as expected by 14 of 16 analysts in a BusinessWorld poll. Interest rates on the overnight deposit and lending facilities were also kept at 1.5% and 2.5%, respectively.

At that meeting, the central bank raised its inflation outlook for this year to 4% from the previous forecast of 3.9%. This matches the upper end of the BSP’s 2-4% target.

If realized, this would be faster than the 2.6% logged in 2020.

On the other hand, inflation is expected to average 3% for 2022 and 2023.

“Amid the upward revision of the BSP’s inflation forecast…investors remained cautious and will probably keep a close eye on future CPI (consumer price index) prints, along with any changes to [the US Federal Reserve’s] rhetoric and BSP’s language,” FAMI said.

“For [this week], sideways trading is likely to be the case as players take cues from developments in the global bond space. Some defensiveness may be seen in the back-end securities heading into the 11-year auction next week,” it added.

PBCom’s Mr. Ladaban the market will monitor the Treasury’s auction of reissued 20-year bonds.

“[The] market will more likely take its cue from the auction of the FXTN 20-20 [on Tuesday], an 11-year bond that has been quite illiquid for some time. Apart from that, I expect little else in terms of local data and events, so we’ll probably look towards flows and swings in global yields for some direction,” he said. — N.M.A. Bo