T-bonds to fetch higher yields

TREASURY BONDS (T-bonds) on offer Tuesday are likely to fetch higher yields after 10-year US Treasury yields rose to their highest levels in three years as the US government shutdown spooked investors.

The Bureau of the Treasury plans to raise as much as P20 billion during Tuesday’s auction of fresh three-year T- bonds set to mature on Jan. 25, 2021.

“I think yields of three-year bonds will move higher due to increased yields of the US Treasuries,” a trader said over the phone on Friday.

Last week, yields of the 10-year US Treasuries soared to as much as 2.6407%, its highest level since September 2014’s 2.6256%.

Bloomberg reported yields of US debt papers were rising on the back of market expectations on the Federal Reserve’s interest rate hikes this year as well as increased borrowing to finance the widening budget deficit.

Meanwhile, another trader said the US government shutdown will provide some headwinds.

“That’s the only black swan for now. But we’re seeing demand on the short-end so [the government] will be able to sell the P20-billion target given the higher US Treasury yields,” the second trader added.

On Saturday, the US government shut down after a standoff between Republican and Democrat lawmakers over a short-term spending bill. Democrats demanded spending legislation include protections for young undocumented immigrants, while Republicans refused to negotiate on immigration.

A second trader expects the fresh papers to rise 4% to 4.25%, while the first trader gave a slightly higher projection of 4.25% to 4.325%.

Meanwhile, the first trader expects the demand to be tepid, saying the new bond issuances are less attractive compared with the old ones.

“I’m expecting just the right demand because it will be short tenor but because it’s a new issue, [the demand will be tempered]. They prefer the old issue,” he said. —