Rates of Treasury bills, bonds expected to move sideways

RATES of government securities may move sideways or drop this week on improving risk appetite amid the country’s coronavirus situation and ahead of the US central bank’s policy review this week.

The Bureau of the Treasury will offer P15 billion in Treasury bills (T-bills) on Monday, or P5 billion each in 91-, 182- and 364-day securities.

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

“T-bills may just move sideways in the coming auction as investors reassess the country’s COVID-19 (coronavirus disease 2019) situation given that recent data show that the spread is relatively slowing in the National Capital Region comparing to the trend in the first few days of January,” a bond trader said in a Viber message.

“On that note, risk appetite may have slightly improved thereby reallocating some funds to riskier assets or longer government securities with higher yields.”

OCTA Research Group said on Saturday that new coronavirus infections in the capital declined by 30% from Jan. 15 to 21.

OCTA Research fellow and University of the Philippines Professor Fredegusto Guido P. David said in a tweet that while cases are decreasing in the capital region, numbers are expected to surge in provinces like Cebu, Iloilo, and Davao.

Meanwhile, for the seven-year papers, bids may be in the 4.6% to 4.75% range, the trader said.

“Participants have been defensive this past week due to bets of a Fed rate hike this coming March. The rise in yields was mainly capped by reinvestment initiatives on maturing government securities.”

On the other hand, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that T-bill yields could ease further to track rates at the secondary market, as expectations of earlier hikes by the US Federal Reserve caused funds to shift to shorter tenors.

The US central bank is holding its first policy meeting for the year on Jan. 25-26. The Fed is widely expected to raise rates three times this year starting as early as March, median forecasts from a Reuters poll showed. Almost half expect the central bank to hike rates at least four times.

At the secondary market on Friday, the 91- 182- and 364-day T-bills were quoted at 0.8783%, 1.0979%, and 1.4473%, respectively, based on the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

Meanwhile, the seven-year bonds fetched a yield of 4.6504%.

Last week, the government made a full award of the T-bills it auctioned off, raising P15 billion. Total tenders reached P73.58 billion, almost five times the initial offer.

Broken down, the Treasury bureau raised P5 billion as planned via the 91-day securities from P23.7 billion in bids. The three-month debt paper fetched an average rate of 0.969%, down by 10.6 basis points (bps) from the 1.075% seen a week earlier.

The Treasury also borrowed P5 billion as programmed from the 182-day securities it offered from P24.98 billion in tenders. The average rate of the six-month T-bill fell by 14.8 bps to 1.121% from 1.269% previously.

Lastly, the government made a full P5-billion award of the 364-day debt papers as bids reached P24.9 billion. The average yield on the one-year instrument stood at 1.468%, down by 13.2 bps from the 1.6% fetched a week earlier.

Meanwhile, the last time the government offered the seven-year T-bonds to be auctioned off on Tuesday was on Jan. 4, where the government rejected all bids as rates exceeded market expectations, even as tenders reached P41.42 billion.

The last time the bond series was awarded was on Oct. 26, 2021, where the government made a partial award of P19.315 billion against its P35-billion offer at an average rate of 4.468% versus the 3.75% coupon.

The Treasury plans to raise P200 billion from the domestic market this month, or P60 billion via T-bills and P140 billion from T-bonds.

The government borrows from local and external sources to help fund a budget deficit capped at 7.7% of gross domestic product this year. — J.P.Ibañez with Reuters