THE RATES of government securities on offer this week will likely move sideways after the central bank kept borrowing costs at their current record lows at its latest policy meeting.

The Bureau of the Treasury (BTr) is looking to raise P25 billion from its offering of Treasury bills (T-bills) on Monday, broken down into P5 billion via the 91-day debt, P8 billion from the 182-day papers and P12 billion via the 364-day instruments.

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 11 months.

The first bond trader expects the T-bills’ rates to move sideways, while a second trader expects yields on these papers to drop by 5 basis points (bps) “amid strong demand for short-term securities.”

Meanwhile, for the seven-year bonds, both traders said they see its average rate ranging from 3.6% to 3.7%.

The 91-, 182- and 364-day T-bills were quoted at 1.304%, 1.545%, and 1.85% respectively, at the secondary market on Friday, based on the PHL Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website. Meanwhile, the seven-year T-bonds fetched a yield of 3.6%.

The second trader said in a Viber message that the market will factor in the Bangko Sentral ng Pilipinas’ (BSP) decision to keep benchmark interest rates steady at this week’s auctions of government securities.

The BSP held its key interest rate at a record low for a fourth straight meeting on Wednesday, as it continues to support the economy’s recovery from the pandemic.

The Monetary Board maintained the overnight reverse repurchase rate at a historic low of 2%. Both the lending and deposit rates were also kept at 2.5% and 1.5%, respectively.

The BSP’s decision to keep rates steady came a day after release of disappointing first-quarter gross domestic product (GDP) data. For the first three months of 2021, GDP output shrank by an annual 4.2%, keeping the economy in a recession for a fifth consecutive quarter.

Meanwhile, the central bank lowered its inflation outlook this year to 3.9%, from a previous estimate of 4.2%. On the other hand, the forecast for 2022 was raised to 3%, from 2.8% previously. This will put inflation back within the BSP’s 2-4% annual target range.

The bond trader added that the further reopening of the economy will also drive the movement of bond yields this week.

President Rodrigo R. Duterte last week placed Metro Manila and nearby provinces under general community quarantine with heightened restrictions for the rest of the month as coronavirus cases continued to drop.

The Health department reported 6,739 new coronavirus infections on Saturday, which brought the total number of active cases to 56,709.

The BTr last week hiked the volume of T-bills it awarded to P30.2 billion from the programmed P25 billion as demand hit P97 billion and yields dropped across the board. It also raised an additional P7 billion in one-year debt via the tap facility.

Broken down, the Treasury raised P7 billion via the 91-day T-bills, breaching the P5-billion program, at lower average rate of 1.278% versus the 1.306% seen at the May 3 auction.

It also upsized its award of 182-day debt to P11.2 billion from the programmed P8 billion. The average yield on the six-month papers dipped to 1.549% from 1.629% previously.

Lastly, the government made a full P12-billion award of the 364-day securities at an average rate of 1.829%, down from 1.863% previously.

Meanwhile, the Treasury first issued the seven-year bonds on offer on Tuesday on April 20, where it awarded P35 billion as planned as bids hit P90.386 billion. The notes fetched a coupon rate of 3.625%.

The BTr wants to raise P170 billion from the local bond market this month: P100 billion via weekly offerings of T-bills and P70 billion from T-bonds to be auctioned off fortnightly.

The government is looking to borrow P3 trillion this year from domestic and external sources to help fund its budget deficit seen to hit 8.9% of gross domestic product. — B.M. Laforga