T-bill and bond rates may move sideways on cautious sentiment

RATES OF government securities on offer this week will likely move sideways or end mixed, with investors becoming increasingly cautious towards long-term debt despite strong liquidity in the market.

The Bureau of the Treasury (BTr) wants to borrow P20 billion from its offer of 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 securities.

On Tuesday, the BTr will auction off P30 billion in reissued 10-year Treasury bonds (T-bonds), which have a remaining life of nine years and five months. The notes bear a coupon of 2.875%.

T-bill yields may move sideways or higher by five basis points (bps) from the previous week, Security Bank Corp. First Vice-President and Head of Wholesale Treasury Sales Carlyn Therese X. Dulay said in an e-mail.

Ms. Dulay said the recent sell-off could push the rates of these short-term debt to inch up, but this will be partly tempered by abundant liquidity in the market.

However, a bond trader expects T-bill rates to continue to go down by 5-10 bps at this week’s auction.

Robinsons Bank Corp. peso sovereign debt trader Kevin S. Palma, for his part, said “demand for the front end of the curve is still expected to be tenacious as liquidity remains the name of the game.”

“Investors opt to diversify their excess cash on the intermediate term as policy settings remain to be accommodative and may not likely tighten until we see the economy in full throttle,” Mr. Palma added.

Meanwhile, for the reissued 10-year bonds, Ms. Dulay said they expect the notes to fetch a rate between 2.9% and 3%, while the trader gave a forecast range of 3-3.1%.

“We think the 10-year auction [this] week will meet demand relatively weaker than that of a three- or five-year bond as players have been quite aloof on the long end due to prospects of better conditions in the country from the pandemic. Alongside that, the market is also set to take in tenors under 10-year in the second half of February, so we might not see tenders like 3 to 4 times the supply size,” Ms. Dulay said.

Robinsons Bank’s Mr. Palma also sees a slight uptick in the 10-year bond’s rate as investors remain cautious, even as they seek higher returns amid the low interest rate environment.

The Bangko Sentral ng Pilipinas (BSP) slashed benchmark rates by 200 bps last year, bringing down the overnight reverse repurchase, lending and deposit yields to record lows of 2%, 2.5%, and 1.5%, respectively.

The BTr last week upsized the volume of T-bills it awarded to P22 billion from P20 billion and even opened its tap facility to accommodate the strong demand seen for the offering. The auction attracted total tenders of P112.2 billion, making the offer over five times oversubscribed.

Broken down, the Treasury raised P5 billion in 91-day T-bills as planned from P17.33 billion in bids. The three-month debt fetched an average rate of 0.969%, down 1.5 bps from the 0.984% logged in the previous week.

The government also accepted P7 billion in bids for the 182-day T-bills, higher than the P5-billion program, as tenders hit P31.527 billion. The average yield of the six-month papers went down by 2.5 bps to 1.323% from 1.348% previously.

Lastly, the Treasury made a full P10-billion award of the 364-day securities on offer, with total bids reaching P63.355 billion. The one-year instruments were quoted at an average rate of 1.542%, down 4 bps from the 1.582% seen in the previous offering.

Meanwhile, the last time the BTr offered the reissued 10-year bonds on offer on Tuesday was on Aug. 11 where it made a full P30-billion award out of P54.725 billion in bids. The T-bonds fetched an average rate of 2.724%, down from the coupon fetched when the papers were first auctioned off on July 11.

At the secondary market on Friday, the 91-, 182- and 364-day T-bills were quoted at 1.091%, 1.091% and 1.53%, respectively, while the 10-year bonds fetched a yield of 2.937%, based on the PHL Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

The BTr plans to borrow P140 billion from the local debt market this month: P80 billion via weekly auctions of T-bills and P60 billion from fortnightly T-bond offerings.

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