Yield on 10-year Treasury bonds seen sideways

By Melissa Luz T. Lopez,
Senior Reporter

TREASURY BONDS (T-bonds) on offer this week will likely fetch higher yields than current market rates as investors take a wait-and-see stance ahead of a policy meeting in the United States, while tracking rate movements offshore amid worsening geopolitical tensions.

Traders interviewed on Friday said the 10-year T-bonds which will be auctioned off this week will likely see the average yield move sideways from the rate fetched last month.

The government is looking to raise P15 billion worth of reissued debt papers on Tuesday, which have a remaining life of nine years and seven months. The papers were first awarded in May and were returned on the auction block on Aug. 22 and came with an average rate of 4.718%.

For this week, the first trader said yields will range from 4.55-4.65%, while another gave a 4.57-4.65% range. If realized, this would sustain a decline in interest rates coming from the original 4.75% coupon rate of the 10-year debt notes.

The debt notes were quoted at 4.5631% at the secondary market on Friday afternoon.

“Rates might be slightly lower from the previous auction but from the secondary market it’s higher because of the recent US CPI (consumer price index) data was higher than expected. [There’s also] the fear of hawkish statements from the Fed[eral Reserve] come Sept. 19-20,” one trader said in a phone interview.

US inflation picked up in August after five straight months of missing expectations, Reuters said in a report, which some players took as a renewed impetus for the Fed to consider raising rates for a third time this year by December.

However, the trader pointed out that the supposed upward push from developments in the US economy will be “countered by rising geopolitical tensions,” following North Korea’s latest missile launch on Friday over Japan, a known US ally. Escalating fears pulled US Treasury yields down, a move that will be tracked by peso-denominated papers.

South Korea’s President Moon Jae-in and US President Donald J. Trump agreed to exert stronger pressure through sanctions on North Korea following its nuclear and missile tests, South Korea’s presidential office said following a telephone call between the two leaders on Sunday.

“The two leaders agreed to strengthen cooperation, and exert stronger and practical sanctions on North Korea so that it realizes provocative actions leads to further diplomatic isolation and economic pressure,” Blue House spokesman Park Soo-hyun said in a televised briefing.

Another trader said market players will be waiting for cues ahead of the Fed’s policy meeting this week in anticipation of signals as to when they will next raise rates.

“For the past few days, the market has been quiet but in terms of taking positions, the demand is more on the short end or less than 10 years. There will be demand, but with the anticipated possible rate increase by the Fed, they [investors] will be on a wait-and-see,” the second trader said.

Key statements to look for at this week’s Fed policy meeting would be its plans on unwinding its balance sheet, which is expected as the central bank’s immediate move towards rate normalization.

Both traders said the Treasury could still make a full award of its offer during the auction, with demand expected to be at least 1.5 times to twice the planned amount.

The government is looking to borrow as much as P195 billion from domestic sources this quarter through Treasury bills and Treasury bonds. — with Reuters