GOVERNMENT SECURITIES on offer this week will likely fetch higher yields amid likely tepid demand from investors following a fresh interest rate hike by the local central bank.
The Bureau of the Treasury (BTr) is offering P15 billion worth of Treasury bills (T-bill) today. Broken down, the Treasury plans to raise P5 billion via the three-month papers, P4 billion through the six-month tenor, respectively, and another P6 billion in one-year T-bills.
The government will also offer P10 billion in reissued five-year Treasury bonds (T-bond) with a remaining life of four years and eight months on Tuesday.
“For the bills, we expect yields to pick up by around five basis points across all tenors from the previous auction,” a trader said in a phone interview Friday.
Last Monday, the Treasury made a partial award of the short-dated securities, raising just P8.356 billion out of the P15 billion it intended to borrow.
The government rejected all bids for the 91-day tenor while it fully awarded the P4 billion for the 182-day papers. The government borrowed just P4.356 billion out of the planned P6 billion for the 364-day securities. The six-month and one-year T-bills fetched average rates of 3.766% and 4.357%, respectively.
Meanwhile, another bond trader said the five-year bond auction on Tuesday will fetch higher yields that might land within a 5.75-6% range.
The first trader likewise placed the average rate for the five-year papers at “around 5.65-5.85%.”
In April, the Treasury raised P10 billion as planned from the reissued five-year bonds, with total tenders amounting to P18.924 billion. The bonds fetched an average rate of 5.592%, higher than the coupon rate of 5.5%.
At the secondary market on Friday, the three- and six-month papers were quoted at 3.9536% and 4.2393%, respectively, while the one-year T-bills fetched 4.3119%.
The five-year bonds, meanwhile, were quoted at 5.8467%.
The first trader said investors will “take into account the recent hike in policy rates” of the Bangko Sentral ng Pilipinas (BSP) in pricing their bids.
Last Wednesday, the BSP’s rate-setting Monetary Board decided to raise its interest rates by a quarter of a percentage point amid concerns of rising inflation. Rates now stand at 4% for the overnight lending rate, 3.5% for the overnight reverse repurchase rate, and 3% for the overnight deposit rate.
The BSP decided to hike its benchmark rates as “inflation expectations remained elevated for 2018 and that the risk of possible second-round effects from ongoing price pressures argued for follow-through monetary policy action.”
However, the second trader noted the BSP rate hike was already priced in by the investors on previous auctions.
“The policy setting already affected the market as bids rights now are higher, so expect the weak demand for bonds to continue,” the trader said in a text message.
The second trader noted that there will be lack of demand for the T-bonds “as the market awaits BTr’s borrowing plan for the second half.”
The first trader added that the weakness of the peso against the dollar will also be factored in by the market.
The local currency has been slipping to near 12-year lows since May amid lingering concern over the trade tensions between the United States and China.
The Treasury is holding two auctions per week this quarter — one for T-bills and another for T-bonds — to reflect increased borrowing requirements as it is set to raise P325 billion via the domestic market in the period. However, it has made several rejections and partial awards in previous auctions amid rising rates.
The government plans to borrow P888.23 billion from local and foreign sources this year to fund its budget deficit, which is capped at 3% of the country’s gross domestic product. — Karl Angelo N. Vidal

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