T-bonds may fetch higher rates

YIELDS on seven-year Treasury bonds (T-bonds) will likely inch slightly higher this week as market players stand cautious with bets for a third rate hike in the United States still live.

The Bureau of the Treasury (BTr) is looking to raise P15 billion in the reissued seven-year debt papers on Tuesday with a remaining life of six years and six months.

The debt notes fetched a 4.51% average yield when these were last offered in August, slightly higher than the 4.5% coupon rate assigned back in April. The papers were quoted at 4.3277% at the secondary market as of Friday afternoon.

Traders interviewed late last week said the debt notes will likely see rates move sideways with a slight upward bias compared to the market rate, with investors being “careful” in betting on seven-year papers.

“There will be demand, but at least half of that will be demanding higher yields… Overall, investors are more cautious in taking positions,” one trader said.

The trader expects yields to move sideways or slightly higher by five basis points to log within 4.35-4.425%, noting that expectations of a pickup in US inflation will push global interest rates upward.

Consumer prices in the US picked up by 0.5% in September, the fastest increase in eight months driven by a spike in gasoline prices amid production disruptions due to Hurricane Harvey. However, core inflation remained muted, Reuters said in a report.

“Any strong data would warrant the Fed[eral Reserve] to hike rates by December,” the trader added.

US policy makers are primarily looking at inflation and economic growth in timing its next wave of rate normalization, as these data paint the picture of the pace of economic recovery years after the Global Financial Crisis.

Separately, a second trader said rates for T- bonds could move sideways amid mixed signals from the Fed, with yields seen to fall within the 4.384.44% range.