T-bill rates to decline on strong investor demand
TREASURY BILLS (T-bills) on offer today will likely fetch even lower yields on the back of strong demand for the debt papers and fuelled by a stronger peso, as the market tracks lower rates in the United States.
Bond traders interviewed on Friday said the Bureau of the Treasury will likely raise P15 billion as planned from the offering of three-month, six-month, and one-year debt notes, with rates expected to drop by five to 10 basis points ( bps) from the previous auction.
The Treasury is looking to raise P6 billion in three-month papers, P5 billion in six- month papers, and P4 billion under the one-year tenor.
“We’ll see lower yields by 5-10 bps because if we look at US treasuries, the 10-year [notes] are now about 8-10 bps lower because the non-farm payrolls data was not that good and US GDP ( gross domestic product) expectations are not looking good,” one trader said, adding that the impact of Hurricane Irma as well as ongoing geopolitical tensions with North Korea stand as “uncertainties” that provide support to bond rates.
Strong market appetite would also help bring down yields, as the trader expects total tenders to reach as much as three times the P15-billion offering to match the clamor for reissued seven-year Treasury bonds which were sold last week.
During the Aug. 30 auction, 91- day T- bills fetched a 2.143% rate, while the 182-day and 364day papers saw average yields at 2.592% and 2.935%, respectively.
The one- year notes were quoted lower at 2.8854% at the secondary market as of Friday afternoon, while yields on the shorter papers stood at 2.89% for the 91- day and 2.9471% for the 182-day tenor.
A second trader also attributed the expected decline in rates to lower inflation expectations in the US, as well as a shift in market demand among local investors.
“Demand is now on more on the longer tenor. It’s not on the 91-day to one-year anymore but on the two to 10-year papers,” he said, noting that the Treasury can make a full award but not out of
“overwhelming” tenders received during the auction.
The trader said appetite has been recovering for longer tenors as market uncertainties taper off, with bets of another rate hike in the United States by December diminish and as the European Central Bank maintained rates last week. Instead, investors would likely take advantage of the next two weeks to buy bonds ahead of the next meeting of the US Federal Reserve.
The stronger peso — which logged a one- month high of P50.87 per dollar on Friday — would also bolster the case for lower yields, both traders said.
Deputy Treasurer Erwin D. Sta. Ana told reporters last week that ample market liquidity is supporting lower Treasury yields, as players look for outlets where they can deploy their excess funds.
The government is looking to borrow as much as P195 billion from domestic sources this quarter by offering P105 billion worth of T-bills and P90 billion in Treasury bonds, higher than the P180 billion it wanted to raise during the second quarter.