Rates of Treasury bills, bonds to decline on strong demand

RATES of government securities on offer this week could move downward on strong investor demand and following the release of data showing steady inflation in May.

The Bureau of the Treasury (BTr) is looking to raise P15 billion via its offer of Treasury bills (T-bills) on Monday, broken down into P5 billion in 91-day debt, P5 billion in 182-day papers, and P5 billion from the 364-day securities.

On Tuesday, the BTr will offer P35 billion in reissued seven-year Treasury bonds (T-bonds) with a remaining life of six years and 10 months.

A bond trader said the yields of the T-bills on offer on Monday will decline by 5 to 10 basis points (bps) due to the lower volume on offer and as inflation remained steady in May.

The government wants to raise P215 billion from the local debt market this month: P75 billion via weekly offers of T-bills and P140 billion from weekly auctions of T-bonds.

This is bigger than the P170-billion program for May, which was broken down into P100 billion from T-bills and P70 billion from T-bonds. The government adjusted the volume of the weekly T-bill offerings to P15 billion from P25 billion previously and scheduled a T-bond auction per week instead of fortnightly.

Meanwhile, inflation was steady for the third straight month at 4.5% in May, matching market expectations.

The figure was within the 4-4.8% estimate by the Bangko Sentral ng Pilipinas (BSP) for that month and also matched the median estimate in a BusinessWorld poll.

Year to date, inflation was 4.4%, higher than the 2-4% target of the BSP and its revised forecast of 3.9% for the year. May was the fifth month in a row that inflation went beyond target.

On the other hand, the trader expects the reissued seven-year bonds on offer on Tuesday to fetch a rate between 3.75% and 3.875%.

“There are more factors to consider for this one — how convinced the market is on the phase of reopening of economy and the tone of US Treasury yields come day of auction,” the trader added.

The BTr raised P21 billion from its offer of T-bills last week, higher than its P15-billion program, after it accepted more non-competitive bids for all the tenors amid a decline in rates.

Total bids for the short-tenored securities stood at P87.173 billion on Monday, making the offering over five times oversubscribed.

Broken down, the Treasury awarded P7 billion in 91-day debt papers, higher than the initial offer of P5 billion, as it accepted P4 billion in non-competitive bids versus the original program of P2 billion. Tenders for the tenor reached P22.15 billion.

The three-month T-bills fetched an average rate of 1.235%, down by 3.4 bps from the 1.269% quoted previously.

The Treasury likewise borrowed P7 billion from the 182-day T-bills versus the P5-billion program after bids hit P27.41 billion. The average rate of the six-month papers went down by 6.9 bps to 1.472% from 1.541%.

Lastly, for the 364-day securities, the government awarded P7 billion, up from the P5-billion plan, as the tenor attracted tenders worth P37.613 billion. The one-year papers were quoted at 1.723%, 7.3 bps lower than the 1.796% seen in the previous auction.

Meanwhile, the reissued seven-year bonds on offer on Tuesday were first offered on April 21, where the Treasury raised P35 billion as planned. Total tenders reached P90.386 billion, making the offer 2.6 times oversubscribed.

The seven-year notes fetched a coupon rate of 3.625% at that auction.

At the secondary market on Friday, the 91-, 182-, and 364-day T-bills were quoted at 1.3026%, 1.4738%, and 1.7548%, respectively, while the seven-year bond fetched a rate of 3.6775%, based on the PHL Bloomberg Valuation Reference Rates published on the Philippine Dealing System’s website.

The government is looking to borrow P3 trillion from domestic and external sources this year to help fund a budget deficit seen to hit 8.9% of gross domestic product. — IBC