YIELDS on government securities to be offered this week will likely end mixed amid market expectations of a big issuance from the Bureau of the Treasury.
The government is offering today P15 billion worth of Treasury bills (T-bills). Broken down, the BTr will raise P5 billion and P4 billion via the three- and six-month papers, respectively, and another P6 billion in one-year T-bills.
The bureau will also offer P10 billion in reissued seven-year Treasury bonds (T-bonds) with a remaining life of six years and 11 months.
Traders interviewed last week said yields on the T-bills will likely end mixed since investors still prefer short-dated securities.
“For the bills, yields on the 91- and 182-day papers might be lower by around five basis points,” a trader said in a phone interview, adding that bids for the one-year bills may rise by “around five basis points.”
However, another trader expects rates at the T-bills auction to “be lower by [five] to 10 basis points.”
The first trader said the longer-dated one-year bills might receive tepid demand from investors as the preference is still on the short-term papers.
“On the demand side, we still expect to see strong demand on the 91-day and 182-day notes as most clients still prefer short-dated tenors,” the first trader said.
During last week’s T-bills auction, the Treasury fully awarded the three- and six-month papers, but opted to fully reject bids for the one-year T-bills. The average rate of the 91- and 182-day notes slipped at 3.439% and 3.958%, respectively, from the previous auction.
Meanwhile, the traders expect the rate of the seven-year T-bonds to climb.
“For the seven-year [papers], the rate might be at 5.75-5.85%,” the first trader said.
The first trader sees the rate of the reissued papers landing between 5.75% and 5.85%, while the other gave a 5.60-5.85% range.
The government raised P7.932 billion from the fresh seven-year bonds auctioned off on April 11 with a 5.75% coupon.
“The higher yield forecast for [seven-year] paper reflects the uncertainty on when the government will put the trigger for the next big issuance,” the second trader said.
At the secondary market on Friday, the 91-day, 182-day and 364-day T-bills closed at 3.4319%, 3.8321% and 3.916%, respectively, while the seven-year bond was quoted at 5.7394%.
Investors are expecting the government to look for a “window of opportunity” to tap domestic funding, be it a bond swap or a retail bond issuance, ANZ Research said in a note.
Last month, National Treasurer Rosalia V. De Leon said the government is looking for a “good window” to raise more financing.
“This auction of [seven-year] bond may see slightly softer demand but bond redemption of P130.5 billion on May 23 will help,” ANZ Research added.
Meanwhile, the first trader said the rate hike by the Bangko Sentral ng Pilipinas (BSP) will not greatly affect this week’s auction as it was already priced in previously.
The BSP on Thursday hiked key rates by 25 basis points amid accelerating inflation and robust economic growth. Rates now stand at 3.75% for the overnight lending rate, 3.25% for the overnight reverse repurchase rate, and 2.75% for the overnight deposit rate.
However, the second trader noted that today’s T-bill auction “might be one of the best this year” especially after the rate hike.
“That’s one less uncertainty in the market,” the trader added.
The Treasury is holding two auctions per week this quarter — one for T-bonds and another for T-bills — to reflect increased borrowing requirements. The government plans to borrow P888.23 billion this year from local and foreign sources 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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