YIELDS ON government securities on offer this week will likely move sideways on the back of market repositioning at the start of the year and as investors wait for latest inflation data to be released this week.

The Bureau of the Treasury (BTr) will offer P20 billion via Treasury bills (T-bills) on Monday, broken down into P6 billion for 91-day and 182-day papers and another P8 billion offer for one- year securities.

On Tuesday, Jan. 7, the BTr will also auction off P30 billion in reissued three-year Treasury bonds (T-bonds) with a remaining life of two years and five months.

In an interview, a bond trader said they expect the T-bills to trade sideways while they see the three-year bonds to fetch rates within the 3.725-3.85% range.

“Factors to consider are that most participants are expected to reposition at the start of the year and then it will also depend on market expectation for the inflation which should be released next (this) week,” the trader said via telephone on Friday.

The T-bill auction on Dec. 2 saw the three-, six-, and twelve-month papers fetch average rates of 3.192%, 3.348% and 3.475%, respectively.

Meanwhile on Dec. 10, the Treasury raised P20 billion as planned via the three-year bonds at an average rate of 3.742%. The rate was 25.4 basis points (bps) lower compared to the 3.996% logged in the previous auction of this tenor on Aug. 27.

At the secondary market on Friday, the three-year papers fetched a rate of 3.856%, while the T-bills ended with rates of 3.19%, 3.356% and 3.43% for three-month, six-month and one-year papers, respectively, based on the PHP Bloomberg Valuation Service Reference Rates.

Inflation data for December and for 2019 will be released on Tuesday by the Philippine Statistics Authority.

A BusinessWorld poll of 13 economists bared a 2.1% median estimate for December headline inflation, well within the central bank’s forecast range 1.8-2.6% for the month.

The Bangko Sentral ng Pilipinas (BSP) set a 2-4% inflation target for 2019, with its latest forecast for the year at 2.4%.

Meanwhile, another trader expects rates of government securities to be slightly lower from the previous auction for both the offerings this week.

The trader added that there will be ample liquidity for the longer tenor due to the reserve requirement ratio reductions as well as the big maturity on Dec. 22 that was not reflected in the expected “Christmas rally.”

“We can expect the rates to be lower because the market on the longer end today came off — yields came off so there’s some demand that came out. So we can expect the short end curve to adjust to it,” the second trader explained via phone on Friday.

The Treasury has set a P420-billion local borrowing program this quarter, broken down into P240 billion in T-bills and P180 billion via T-bonds.

The government plans to raise P1.4 trillion this year from local and foreign lenders to plug its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product. — Beatrice M. Laforga