Rates of T-bills, bonds to move sideways on Delta variant fears

RATES OF government securities on offer this week may move sideways after the government tightened restrictions anew to prevent the further spread of the more infectious Delta variant of the coronavirus disease 2019 (COVID-19).

The Bureau of the Treasury (BTr) is looking to offer P15 billion in Treasury bills (T-bills) on Monday, broken down into P5 billion each in 91-, 182- and 364-day debt papers.

On Tuesday, the BTr will auction off P35 billion in reissued seven-year Treasury bonds (T-bonds) with a remaining life of six years and eight months.

Two bond traders said the rates of the short-term bills will likely move sideways, while the seven-year T-bond’s yield may range from 3.625% to 3.675%. Meanwhile, a third trader gave a wider forecast range of 3.55-3.75% for the bonds on offer on Tuesday.

All three traders said the market is pricing in the possibility of tighter lockdowns as the Delta variant spreads in the country.

“All eyes are on the Delta variant and how the government will react to this and how this will affect the economy,” the third trader said via Viber.

The government on Friday placed Metro Manila and the provinces of Ilocos Norte, Ilocos Sur, Davao de Oro, and Davao del Norte under general community quarantine “with heightened restrictions” until the end of the month to help curb the spread of COVID-19.

The Health department on Saturday reported 17 new cases of the Delta variant, with 12 of which said to be local cases and one a returning overseas Filipino. The other four cases are still being verified. Three of these newly reported Delta variant cases are said to be active, while 14 have recovered.

The country now has a total of 64 Delta variant cases.

The government also reported 6,216 new COVID-19 cases on Saturday, which bought active cases to 54,401.

The traders said yield movements could also be influenced by Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno’s remarks that the central bank will keep benchmark rates low over the near term to help the economy recover faster. The BSP’s policy-setting Monetary Board kept rates at record lows in its June meeting.

Mr. Diokno reiterated last week that the BSP’s current policy settings remain appropriate as it sees inflation staying within the annual 2-4% target.

Headline inflation slowed to a six-month low of 4.1% in June on easing transport prices and the slower increase in the food price index. However, the pace fell beyond the BSP’s annual target for the sixth month in a row.

July inflation data will be released on Aug. 5.

The BTr fully awarded its offer of P15 billion in T-bills last week even as rates inched up across the board. Total tenders reached P45.74 billion.

Broken down, it borrowed the programmed P5 billion via the 91-day papers at an average rate of 1.082%, up from the 1.068% quoted on July 12.

The Treasury also raised P5 billion as planned from the 182-day T-bills. The six-month papers fetched an average rate of 1.401%, higher than the 1.384% seen the week prior.

Lastly, the BTr made a full P5-billion award of the 364-day securities at an average yield of 1.629%, rising from the 1.593% quoted in the previous auction.

Meanwhile, the last time the BTr offered the reissued seven-year bonds to be auctioned off on Tuesday was on June 8, raising P35 billion as planned from P83.684 billion in bids.

The T-bonds yielded an average rate of 3.685%, slightly higher than the 3.625% coupon fetched for the series.

At the secondary market on Friday, the rates of the 91-, 182- and 364-day T-bills stood at 1.156%, 1.414% and 1.637%, respectively, while the seven-year tenor was quoted at 3.482%, based on the PHL Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

The Treasury is looking to raise P235 billion from the local market this month: P60 billion via weekly offers of T-bills and P175 billion from weekly auctions of T-bonds.

The government wants to borrow P3 trillion from domestic and external sources this year to help fund a budget deficit seen to hit 9.3% of gross domestic product. — B.M. Laforga