YIELDS on government securities on offer this week will likely move sideways following the policy tightening by the central bank.
The Bureau of the Treasury (BTr) is offering P15 billion worth of Treasury bills (T-bill) today. Broken down, the Treasury plans to raise P4 billion and P5 billion through the three-and six-month papers, respectively, and another P6 billion in one-year T-bills.
The BTr will also auction off P15 billion in reissued five-year Treasury bonds (T-bond) with a remaining life of four years and six months.
Bond traders interviewed before the weekend said rates on the T-bills on offer today will likely move sideways, with one saying yields will move up by five basis points (bp) across the board from the previous auction.
The Treasury made a full award of the T-bills it auctioned off last week, borrowing P15 billion as planned versus total tenders amounting to P46.4 billion.
The yield on the three-month paper climbed to 3.29%, while the average rates of the six-month and one-year notes slid to 4.186% and 4.899%, respectively.
At the secondary market on Friday, the 91-day, 182-day and 364-day papers were quoted at 3.1859%, 4.1211% and 4.8572%, respectively.
The trader added that the five-year T-bond auction on Tuesday could fetch a higher rate from the previous auction.
“For the T-bonds, I’m expecting the average rate to land between 5.75% and 5.95%,” she said.
The government fully awarded the reissued five-year bonds when they were last offered in May, borrowing P10 billion out of the P18.924 billion in total offers.
It fetched an average rate of 5.592%, higher than the 5.452% in March as well as the 5.5% coupon rate. On Friday, the five-year bonds fetched 6.1375% at the secondary market.
“Of course, the market will price in the recent rate hike by the BSP (Bangko Sentral ng Pilipinas) as well as the GDP (gross domestic product) growth,” the bond trader said.
The central bank raised policy rates by 50 bps on Thursday, marking the third consecutive tightening move this year as policy makers seek to rein in price expectations. Rates now stand at a 3.5-4.5% range.
“In deciding to raise the BSP’s policy rate anew, the Monetary Board noted that latest baseline forecasts have shifted higher over the policy horizon, indicating some risk of inflation exceeding the target in 2019,” BSP Governor Nestor A. Espenilla, Jr. said in a media briefing on Thursday.
However, the trader noted that investor demand was tepid due to “slower-than-expected” second-quarter economic growth.
The Philippine economy grew 6% in the three months to June, its lowest pace in three years. The second-quarter GDP growth was slower than the revised 6.6% growth in the first quarter of 2018 and 2017 as well as the 6.8% median in a BusinessWorld poll.
“So far, we’re not seeing as much selling following the rate hike. It looks like it was tempered by the slower-than-expected GDP.”
Meanwhile, ANZ Research said in a report it maintained a “neutral view” on Philippine bonds as the government is seen to heavily rely on bond issuance for funding.
“This, coupled with a rising loan-deposit ratio and declining demand in term deposit auctions, limits the downside in yields,” ANZ Research said in an Aug. 10 report.
The Treasury is set to raise P300 billion from the domestic market this quarter through auctions of securities, offering P195 billion in T-bills and another P105 billion in T-bonds.
The government plans to borrow P888.23 billion this year from local and foreign sources to fund its budget deficit, which is capped at 3% of the country’s gross domestic product. — Karl Angelo N. Vidal

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