RATES OF government securities on offer this week will likely move sideways after the central bank kept policy rates unchanged.

The Bureau of the Treasury (BTr) is looking to borrow P20 billion via the Treasury bills (T-bills) on Monday, broken down into P5 billion each from the 91- and 182-day debt papers and P10 billion via the 364-day instruments.

On Tuesday, the BTr will offer P30 billion in reissued 20-year Treasury bonds (T-bonds) that have a remaining life of 12 years and seven months and a coupon rate of 3.635%.

Yields of the T-bills may decline by five basis points from rates seen at the previous auction, Carlyn Therese X. Dulay, first vice-president and head of Wholesale Treasury Sales at Security Bank Corp., said in an e-mail on Friday.

Kevin Palma, peso sovereign debt trader of Robinsons Bank Corp., said via Viber over the weekend that “now that the Monetary Board (MB) held rates as expected, yields may just mirror the results of the previous auction.”

The policy-setting Monetary Board of the Bangko Sentral ng Pilipinas (BSP) on Thursday kept benchmark interest rates steady amid a steady inflation outlook.

Rates on the BSP’s overnight reverse repurchase, lending and deposit facilities are currently at record lows of 2.25%, 2.75% and 1.75%, respectively. The central bank aims to keep inflation within 2-4% this year.

The BTr borrowed P20 billion as programmed via the T-bills out of P63.306 billion in tenders last week even as rates inched up.

Broken down, the Treasury raised P5 billion as planned via the 91-day T-bills at an average rate of 1.118%, up from the 1.113% seen in the Aug. 10 auction.

It also made a full P5-billion award of the 182-day T-bills at a slightly higher average rate of 1.388% from 1.386% the prior week.

For the 364-day securities, the Treasury borrowed the programmed P10 billion at an average rate of 1.745%, down from 1.746% previously.

Meanwhile, Security Bank’s Ms. Dulay sees the 20-year notes fetching an average rate of 3.5% to 3.75%.

This is lower than the 5.341% fetched in the Nov. 25, 2019 auction when the Treasury last offered the tenor. It awarded just P12.271 billion out of the P20 billion programmed after market participants asked for higher rates.

“We expect the 20-year auction to receive slightly less demand versus the treasury bills due to its much longer duration. As the market expects the BSP’s easy policy stance to only last until the COVID-19 pandemic is resolved, the market may take more conservative positions in the 10-year (or longer) sector of the curve at this time,” she said.

Robinsons Bank’s Mr. Palma said the upcoming offer of 20-year papers should attract real money investors because of its relatively higher yield than tenors in the belly of the curve.

“In a low interest rate setting, there are two things you can do. Extend the duration of your portfolio or diversify to lower credit or a riskier asset. Popular opinion I think is to extend duration mostly to safe-haven assets,” he said.

At the secondary market, rates of the 91-, 182- and 364-day T-bills stood at 1.191%, 1.437% and 1.787%, respectively, while the 20-year notes were quoted at 3.578%, based on Bloomberg Valuation Service Reference Rates posted on Philippine Dealing & Exchange Corp.’s website.

The government has set a P170-billion borrowing program for August. It will auction off P110 billion in T-bills weekly and P60 billion in Treasury bonds fortnightly.

It plans to borrow around P3 trillion this year from local and foreign lenders to plug its budget deficit seen to hit 9.6% of gross domestic product. — Beatrice M. Laforga

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