Rates of Treasury bonds, bills to drop on demand for gov’t papers

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The Bureau of the Treasury will auction off several tenors of government securities this week. -- BW FILE PHOTO

RATES OF government securities on offer this week will likely inch lower amid strong demand for safer assets as the coronavirus disease 2019 (COVID-19) pandemic continues to fuel uncertainties, spooking investors.

The Bureau of the Treasury (BTr) will offer P20 billion via Treasury bills (T-bills) on Monday, broken down into P6 billion each for 91- and 182-day T-bills and P8 billion in 364-day papers.

On Tuesday, the government is also looking to raise P30 billion via the issuance of fresh seven-year Treasury bonds (T-bonds).

Dino C. Aquino, vice-president and Fixed Income Trading head at Security Bank Corp.’s Asset Management Group, said the rate for the seven-year tenor might settle within 4.5-4.75%, while yields for the T-bills might “be flat to lower by around 10-15 basis points (bps).”

He said demand for the seven-year papers, however, will be mixed as some players want to take advantage of assets with low prices, while others could maintain a wait-and-see attitude amid rising uncertainties caused by the pandemic.

“Demand may be mixed, we might see some bottom fishing but at the same time, we might see a lot of investors staying on the sidelines because there are still concerns regarding the coronavirus scare that’s happening globally,” he said.

He said in a risk-off sentiment scenario, a steeper yield curve can be observed as long-term papers are being sold off which then drives yields up.

“On a risk-off a scenario, there’s usually steepening on the yield curve where the long-end (papers) are actually being sold off, as evidenced by this week where the 20-years is traded as high as 5.1% from a low of this Monday early (last) week 4.5%, that’s about a 60 bps retracement from the lows,” he said.

Another trader shared the same sentiment, saying the papers could fetch yields lower by at least 10 bps than current levels and demand to government securities will still be strong.

The last time the Treasury offered seven-year papers was on Jan. 21, where the BTr only awarded P27.2 billion out of the P30-billion program at an average rate of 4.732%, even as the offer was almost twice oversubscribed.

Meanwhile, last week, the P20 billion in T-bills the government offered was fully awarded amid lower rates, with the 91-, 182- and 364-day papers fetching average yields of 3.024%, 3.312% and 3.588%

At the secondary market on Friday, the seven-year T-bond was quoted at 4.512%, while the 91-, 182- and 364-day T-bills fetched yields of 3.124%, 3.391% and 3.654%, respectively, according to the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

Amid rising confirmed cases, President Rodrigo R. Duterte on Thursday placed the National Capital Region (NCR) on “community quarantine” which prohibits land, domestic air and sea travels to and from Metro Manila for one month starting Sunday until April 14 as the government intensifies its efforts to contain the disease.

However, workers outside Metro Manila and other business-related trips are exempted from the ban, provided they can present proof of employment.

The Department of Health reported additional 13 confirmed cases on Saturday evening, which brought the total number of individuals that tested positive for COVID-19 in the Philippines to 111 so far. The death toll is currently at eight.

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. — B.M. Laforga