RATES OF government securities will likely move sideways to down as investors expect inflation to remain within the central bank’s target in the next two years.

The Bureau of the Treasury (BTr) will offer on Monday P20 billion in Treasury bills (T-bills) — P5 billion each in 91-day and 182-day papers and P10 billion for 364-day T-bills.

On Tuesday, the BTr will auction off reissued three-year Treasury bonds (T-bonds) worth P30 billion. The bonds have a remaining life of two years and 11 months.

A trader said rates of the T-bills may decline by five to 10 basis points (bps) amid ample liquidity in the market and expectations of low inflation in the next two years.

“Investors will continue to put cash to good use amid expectations that inflation will remain in the government’s target range of 2-4% until 2022,” the trader said via Viber.

The Bangko Sentral ng Pilipinas (BSP) on Thursday lowered its inflation forecast for the year to 2.3% from 2.6% due to easing oil prices and the slower-than-expected print in August.

The BSP also cut its inflation outlook for 2021 and 2022 to 2.8% (from three percent) and three percent (from 3.1%).

The central bank last week said headline inflation is expected to have settled between 1.8% and 2.6% in September. The Philippine Statistics Authority is set to report September inflation data on Oct. 6.

Another trader said T-bill rates may remain unchanged or go down by five basis points amid the benign inflation outlook.

Meanwhile, the first trader said the market’s preference for shorter tenors may put the average rate of the three-year T-bonds on offer this week at 2.15-2.25%, lower than the previous offer, while the second trader said the tenor’s yield will mostly depend on the latest inflation data.

The traders said the BSP’s approval of a P540-billion advance to the National Government last week may push rates lower as the state now has more funds and will not need to borrow much from the market.

“The advance would help ease some borrowing pressure from investors and could further forestall the rise in yields,” the first trader said.

“It somehow will make investors buy the shorter tenors as the ability to borrow from the central bank will not cause the government to rush into issuing more bonds, which may trigger higher yields,” the second trader noted.

The BTr last week borrowed P22 billion via the T-bills as the offer was more than thrice oversubscribed, with bids reaching P71.941 billion.

Broken down, the Treasury awarded P7 billion in 91-day T-bills at an average rate of 1.121%, down 3.5 bps from a week ago.

The government also borrowed P5 billion as planned in 182-day papers as its average rate went down 1.4 bps to 1.601%.

The BTr likewise awarded the programmed P10 billion in 364-day securities at an average rate of 1.888%, up 0.8 bp from the previous auction.

Meanwhile, the three-year T-bonds were last offered on Sept. 8 where the BTr awarded P30 billion as planned as the offer was thrice oversubscribed, with tenders amounting to P87.963 billion. The bonds fetched a coupon rate of 2.375% and an average rate of 2.279%.

At the secondary market, the three-month, six-month and one-year T-bills were quoted at 1.135%, 1.579%, and 1.853%, respectively, on Friday, based on the PHL Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website. Meanwhile, the three-year bonds fetched an average rate of 2.307%.

The Treasury is looking to raise P140 billion from the domestic market this month: P80 billion in weekly T-bill auctions and P60 billion in fortnightly T-bond auctions.

The government wants to borrow around P3 trillion this year from local and foreign lenders to help fund its budget deficit expected to hit 9.6% of the country’s gross domestic product. — K.K.T. Jose