T-bill, bond rates likely to drop

YIELDS on government securities on offer this week will likely inch down further as the investors continue to park their funds in these safe-haven assets.

The Bureau of the Treasury (BTr) is looking to borrow P20 billion via its offer of Treasury bills (T-bills) on Monday: P5 billion each via the three-and six-month debt and P10 billion from the one-year securities.

On Tuesday, the BTr will offer P30 billion in reissued 10-year Treasury bonds (T-bonds) with a remaining life of six years and three months.

Two bond traders expect T-bills rates to move sideways to five basis points (bps) lower at this week’s auction.

“There is still demand for T-bills as banks still have some excess liquidity and BSP (Bangko Sentral ng Pilipinas) will remain on the defensive and keep their policies accommodative,” the first trader said via Viber over the weekend.

The central bank will keep benchmark interest rates low to support economic recovery amid a coronavirus pandemic, its chief said on Wednesday.

It may also cut banks’ reserve requirements further to encourage lending and boost economic activity, BSP Governor Benjamin E. Diokno said.

The BSP slashed rates by a total of 200 bps last year, bringing down the overnight reverse repurchase, lending and deposit rates to record lows of 2%, 2.5%, and 1.5%.

The second trader said the auction of short-term securities will be met with strong demand given upcoming T-bill maturities on Friday, Jan. 22, and the batch that matured last week that was worth a combined P31.7 billion.

“Investors continue to sit on the fence and opt to place in short term papers due to persistent uncertainties despite vaccine developments,” the trader said via Viber on Friday.

Meanwhile, for the reissued 10-year T-bonds, the first trader expects its average rate to settle within 2.75% to 2.85%, while the second trader gave a slightly lower band of 2.725% to 2.8%.

“Given the dearth in cash outlets at the moment, some yield chasers will look to the seven-year reissuance to put some excess liquidity into work,” the second trader said.

The BTr last week hiked the volume of T-bills it awarded to P22 billion and even opened its tap facility to take advantage of robust demand.

Broken down, it borrowed P5 billion as planned via the 91-day T-bills from P21.45 billion in bids. The average rate of the three-month papers inched down to 0.977% from the 0.987% quoted in the Jan. 4 auction.

The government awarded P7 billion worth of 182-day T-bills, up from the programmed P5 billion, at an average rate of 1.36%, slightly lower than the 1.369% seen previously.

Lastly, the BTr made a full P10-billion award of the 364-day securities on offer last Monday as tenders hit P43.045 billion. The one-year papers were quoted at an average rate of 1.605%, down 0.9 bp from the previous rate of 1.614%.

Meanwhile, the last time the BTr offered this series of reissued 10-year notes was in December where it raised P30 billion as planned as demand reached P70.45 billion, more than double the offered amount.

The 10-year T-bonds, which carry a coupon rate of 4.75%, were quoted at an average rate of 2.791% at that auction, declining by 194.1 bps from the 4.732% fetched during the previous auction of the series.

At the secondary market on Friday, the three-month, six-month and one-year T-bills were quoted at 1.129%, 1.387% and 1.607%, respectively, based on the PHP BVAL Reference Rates posted on Philippine Dealing System’s website. Meanwhile, the seven-year bonds — the benchmark closest to the remaining life of the reissued 10-year papers on offer this week — fetched a rate of 2.794%.

The Treasury plans to borrow P140 billion from the local debt market this month: P80 billion via weekly auctions of T-bills and P60 billion from fortnightly T-bond offerings. — B.M. Laforga

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