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T-bills may fetch higher yields

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Bureau of Treasury (BoT)
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GOVERNMENT SECURITIES on offer this week are expected to fetch higher yields as investors likely price in the possible cut in reserve requirements and anticipation of a retail treasury bond (RTB) offering.

The Bureau of the Treasury (BTr) is offering P20 billion worth of Treasury bills (T-bill) today, broken down into P6 billion each for the three- and six-month instrument and another P8 billion in one-year papers.

The BTr will also offer on Tuesday fresh seven-year Treasury bonds (T-bond) amounting to P20 billion.

Traders interviewed before the weekend said the T-bills on offer today will likely move sideways, with one saying the rates will move 5-10 basis points (bp) higher from the previous auction.

The government decided to fully award the T-bills on offer last week, raising P20 billion as planned versus total tenders amounting to P33.657 billion.

Rates of the three-month, six-month and one-year instruments slid 2.2-5 bps to 5.484%, 5.867% and 5.924%, respectively.




For the T-bonds, the trader expects the average rate to land between 6.25% and 6.375%, while another trader gave a 6-6.15% range.

The government raised P15 billion as planned from its auction of seven-year T-bonds when it was last issued in December. It fetched an average rate of 7.09%, 11.6 bps higher than the previous offer.

The other trader said rates will be “a bit higher” this week in anticipation of the RTB sale.

“Last week, there’s an announcement of possible RTB issuance soon. So dealers will keep that in mind coming into this week’s auctions,” the trader said in a text message.

In June last year, the government offered three-year retail bonds, issuing P121.765 billion with a coupon rate of 4.875%.

“The seven-year bond auction may receive less demand or investors may demand 5-10 bps higher.”

“Aside from the possible RTB issuance, the market will also look out for possible cut in reserves,” the first bond trader said.

Nicholas Antonio T. Mapa, senior economist at ING Bank N.V. Manila, said on Thursday that the Bangko Sentral ng Pilipinas (BSP) is expected to announce a reduction in reserve requirement ratio (RRR) at an off-cycle meeting this month.

However, BSP Deputy Governor Diwa C. Guinigundo highlighted the need for “tight” liquidity conditions before further reserve requirement cut can be considered.

Meanwhile, international banking giant HSBC said it would be prudent for the BSP to hold off from trimming reserve requirements for banks until inflation is “firmly within its 2-4% target.”

For this quarter, the government is planning to borrow P360 billion. Some P240 billion will be borrowed this quarter through 12 weekly T-bill auctions. On the other hand, P120 billion worth of T-bonds will also be issued through six fortnightly auctions.

The state plans to borrow P1.189 trillion in 2019 to fund its spending plans. Of the amount, 75% will be sourced domestically while the remainder will be from foreign creditors. — Karl Angelo N. Vidal