Reissued five-year T-bond to fetch higher rates

YIELDS on Treasury bonds (Tbonds) on offer today are expected to trend higher, tracking the rising rates of US Treasuries, even as demand is likely to remain strong.

The government plans to raise as much as P25 billion in today’s auction of reissued five-year Tbonds with a remaining life of three years and nine months.

“I think it’s expected that rates will be higher on the five-year bonds today, but demand is still there — it’s just that investors are asking for higher rates since the benchmark of the auction are still the US Treasuries. We saw higher yields across the globe, not just in the Philippines, so that would also be the trend here,” a trader said in a phone interview yesterday.

Reuters reported that yields on US Treasuries on Monday soared to hit a two-week high “as investors dumped US government debt” right after the Nov. 8 presidential elections there.

“And it was also mentioned that just like the US, the Philippines wants to spend more, probably since our country is more likely to issue local bonds in pesos or borrow locally. People are expecting that this is not the only local issuance, there’s a lot more, so that’s why investors are asking for higher rates,” the trader added.

US President- elect Donald Trump’s fiscal policies were seen to widen US inflation as he plans to boost infrastructure spending to drive the US economy.

The trader said that the government may partially award the five-year security with bids likely to hover between 3.5% and 3.8%, but subscription is expected to come in just within the offered volume or a little over the program “as the market is still liquid.”

The T- bonds on offer today were first issued last Aug. 20, 2015 with a coupon rate of 3.375%.

At the fixed income exchange market on Monday afternoon, the five-year bonds were last quoted at 4.8357%, while the four-year papers yielded 4.1946%.

Meanwhile, another trader said “there’s still a lot of demand for shorter duration bonds.”

“We’re looking at indication of 3.6% to 4%, hopefully we’ll get at least twice of the P25 billion on offer,” the trader added.

Asked for possible risks or concerns investors are currently keeping an eye on, the trader said the market is watching “the country’s normalization of inflation and potential demand on the shorter end of the curve, including the five-year T-bonds on offer.” Still, despite these possible downside risks, the trader said “participation will still be healthy.”

At its first T-bond auction this quarter last Oct. 11, the government decided to partially award the reissued seven-year bonds with a remaining life of six years and six months due to increased uncertainty due to the US Federal Reserve’s plan of hiking interest rates before yearend.

The Bureau of the Treasury was only able to raise P11.772 billion in fresh funds at that auction, less than half of its planned P25-billion financing, after the offer was undersubscribed, with banks wanting to buy just P22.082 billion of the papers auctioned. The 2023 T- bonds fetched an average rate of 3.605%, higher by 41.9 basis points ( bps) from its previously fetched rate of 3.186%

Meanwhile, the government made a full award of reissued fiveyear T- bonds offered last June 28 amid strong market demand for the debt papers. The paper fetched a rate of 2.698%, 55.2 bps lower than the previously fetched rate of 3.250%.

The government wants to borrow up to P135 billion from the domestic market for this quarter — P60 billion worth of Treasury bills and P75 billion worth of Treasury bonds — but has made several partial awards in past auctions as it sought to cap borrowing costs.