Yields on Treasury bills to move sideways amid lack of catalysts

YIELDS on Treasury bills (Tbills) on offer tomorrow may move sideways amid the lack of fresh leads offshore and at home, even as strong appetite is expected for the shorter-termed papers.

The government plans to raise as much as P15 billion in its auction of T- bills on Tuesday: P6 billion in 91-day debt papers, P5 billion in 182-day notes and P4 billion in 364-day papers.

A bond trader said in a phone interview over the weekend that the offer of the shorter- termed securities is expected to fetch steady to lower rates across the board compared to the previous T-bills auction.

“Yields would probably fall five basis points ( bps) lower or at par, same levels compared to the previous auction,” the trader said. “We are expecting that this T-bills auction will be fully awarded.”

The government fully awarded the T- bills it auctioned off on Aug. 14 after rates requested by financial institutions slipped amid market preference for shorter tenured debt instruments brought about by geopolitical tensions abroad.

The Bureau of the Treasury raised P15 billion as planned, with investors wanting to lend as much as P32.3 billion, more than double the volume of debt papers placed on the auction book.

The 91-day T-bills were fully awarded at P6 billion, after total offers reached P16.196 billion and with the papers fetching a rate of 2.161%.

Likewise, the 182- day securities were fully awarded at P5 billion, with total bids reaching P6.179 billion. The papers were quoted at 2.677%.

Lastly, the government raised P4 billion from its 364-day debt notes after banks wanted to buy as much as P9.917 billion. The securities fetched a yield of 2.946%.

At the close of trades in the secondary market on Friday, the three- month, six- month, and one-year papers were last quoted at 2.1624%, 2.9371%, and 2.8610%, respectively.

Asked what factors would cause rates to go lower at tomorrow’s auction, the trader said: “We see demand on the short-end of the curve focused there, especially on the one-year T-bills.”

The trader said the threemonth papers could be twice oversubscribed, while the 364day debt notes may end up 1.5 times oversubscribed. However, the trader said the six- month securities could see demand at only three-fourths of the volume offered.

The trader added that the Economic Symposium in Jackson Hole, Wyoming last Friday would also have an impact on tomorrow’s auction of T-bills.

“Another factor market players are looking at is the Jackson Hole meeting. Everyone is focused on [European Central bank President Mario] Draghi and if he would stop their asset purchase,” the trader said. “Should they decide not to continue its asset purchase or reduce its assets, most likely we would see markets adjusting and higher yields globally.”

Reuters reported Mr. Draghi primarily talked about solid global recovery during last Friday’s symposium, despite some analysts expecting mentions of the strong euro zone currency.

The trader added that mixed data in the US as well as geopolitical uncertainties involving US

DEVELOPMENTS abroad sent yields on government securities (GS) upward last week as investors were on profit-taking mode ahead of pronouncements made by monetary authorities in Europe and the United States.

Local debt yields, which move opposite to prices, climbed 6.20 basis points ( bps) on average week- on- week, data from the Philippine Dealing & Exchange Corp. as of Aug. 25 showed.

“GS yields generally increased this week due to profit taking ahead of the speeches of European Central Bank (ECB) President Mario Draghi and US Federal Reserve Chair Janet Yellen in the Jackson Hole Economic Policy Symposium,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank).

“Prior to rising on the last day of the week, GS yields initially fell due to safe- haven buying amid political noise in the US, particularly US President Donald Trump’s comment to terminate NAFTA ( North American Free Trade Agreement). GS yields generally tracked the movement of US interest rates,” he said.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines (UnionBank), was of the same view that yields were “largely impacted” by developments abroad: “Notice that a lot of political noise is coming from the US. The tendency (is) for market players to flock to more secure investments when there are a lot of uncertainties in the market. For the Philippines, a lot of trades have been volatile.”

Meanwhile, a bond trader said that local bond yields took their cue from US Treasuries, which were generally lower “given the busy week in Washington” as President Trump struggles to get the Republican Party behind him “as he threatened to push the government into a shutdown” if he does not get the funding needed for putting up the controversial US-Mexican border wall.

At the annual meeting of central bankers in Jackson Hole, Wyoming, Ms. Yellen defended the measures enacted during the financial crisis almost a decade ago, while Mr. Draghi talked about the need for global cooperation in matters of trade and economic development in advanced economies.

At the short end of the yield curve, the 182-day Treasury bill ( T- bill) saw its rate jump by as 37.05 bps to fetch 2.9371% while the 91- and the 364- day debt papers rallied, with yields going down 1.58 bps ( 2.1624%) and 11.58 bps (2.8610%), respectively.

At the belly, the yield on the seven-year Treasury bond (T-bond) went up 29.56 bps to 4.7839%. This was followed by the five-year tenor, which saw its yield rise 2.04 bps (4.5904%); the two-year Tbond with 1.39 bps (3.8121%); and the four-year T-bond with 1.37 bps (4.2132%). On the other hand, the three-year paper yielded 3.8061%, down 3.02 bps.

At the long end, the 20-year T-bond saw its yield increase 7.39 bps (5.5089%) while the 10-year tenor was nearly flat, going down by 0.61 basis point (4.9857%).

Looking forward, local yields will “still probably derive direction from the movement of US Treasuries in reaction to the Jackson Hole conference over the weekend,” the bond trader said.

For Landbank’s Mr. Dumalagan, GS yields “might rise further” amid expectations of strong US economic data on growth, spending, income and employment.

UnionBank’s Mr. Asuncion expects more volatility in the coming weeks, but noted that the strength of the Philippine economy is helping buoy the bond market “in spite of internal and external noises.” —