Yields on gov’t securities drop on auctions

YIELDS on government securities declined following auctions conducted last week, with investors and traders deploying their excess liquidity to get these papers.

Debt yields, which move opposite to prices, went down by six basis points (bps) on average week-on-week, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates as of July 10 published on the Philippine Dealing System’s website.

With the exception of the 20- and 25-year debt papers, all tenors saw their yields go down at the secondary market last Friday.

At the short end, the 91-, 182-, and 364-day Treasury bills (T-bills) declined by 13.2 bps, 13.8 bps, and 6.9 bps to fetch 1.695%, 1.735%, and 1.879%, respectively.

At the belly of the curve, the rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) went down 7.7 bps (2.019%), 6.2 bps (2.143%), 5.9 bps (2.252%), 6 bps (2.363%), and 6.6 bps (2.575%), respectively.

At the long end, the 10-year debt paper went down by 5.1 bps (2.763%), while yields on the 20- and 25-year T-bonds increased by 0.1 basis point (3.589%) and 5.1 bps (3.710%).

“Demand had been initially cautious at the Bureau of the Treasury’s (BTr) 10-year auction earlier in the week. BTr opted to award at a concession of 20 bps above where the market had been trading (2.875%). This result initially caused rates to shoot higher — before persistent demand caused buyers to take yields lower once more,” ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said in an e-mail.

The BTr raised P30 billion as planned from its sale of fresh 10-year T-bonds out of tenders worth P59.71 billion last Tuesday. The debt papers carry a coupon of 2.875%, 400 bps lower than the 6.875% coupon recorded for the last 10-year bond series issued in January last year, but 8.7 bps higher compared to the previous day’s 2.788% rate in the secondary market.

National Treasurer Rosalia V. de Leon said demand for these papers remained strong with the market “still awash with liquidity.”

Monday last week also saw the Treasury raising P24 billion via T-bills out of P116.9 billion in total tenders, which was more than five times the initial offer of P20 billion.

“Investors will now be looking towards the pricing of the 5-year Retail Treasury Bond (RTB) [this] week to set the market direction. Based on current levels, it could potentially price within a wide range of 2.375%-2.75% (in our view, likely to be within the mid-point of 2.50%-2.625%),” ATRAM Trust’s Mr. Liboro said.

“However, similar to the previous RTB in February, if the BTr is inclined to grant additional concessions on the rate in order to generate stronger overall demand, we foresee a higher possibility of pricing towards the high end at 2.75% as opposed to the low end of 2.375%,” he added.

A bond trader said: “[W]e expect the market to focus on the RTB issuance. So market players are expected to reposition ahead of the rate-setting on [Thursday],” the bond trader said on a mobile-phone message.

For Security Bank Corp.’s Chief Investment Officer for Trust and Asset Management Group Noel S. Reyes: “Rates will still have a bias to be lower [this] week, but inflation numbers released [last] week should cap significant down moves in yields,” he said in an e-mail.

Headline inflation accelerated to 2.5% in June, picking up from 2.1% in May, albeit still slower than 2.7% in June 2019. Year to date, inflation settled at 2.5%, still within the central bank’s 2-4% target and above the 2.3% forecast for the entire year.

In February, the BTr raised a record P310.8 billion from its sale of RTBs, consisting of P250 billion from “new money” and P60.8 billion from the exchange offer program.

The second RTB sale is set to be conducted on Thursday.

The BTr has set a P205-billion borrowing program for July and will offer P145 billion in T-bills via weekly auctions and P60 billion in T-bonds to be auctioned off every other week. — MAPS