Rates on Treasury bills to go up as investors make bets on Fed
TREASURY BILLS (T-bills) on offer today will likely fetch higher yields as they track the uptrend of rates on US securities, with currency play also seen to drive market appetite for dollar-denominated debt.
The government plans to raise as much as P20 billion in today’s auction: P8 billion in 91-day securities and P6 billion each in 182and 364-day papers.
A trader interviewed by phone on Friday said that bids for T-bills on offer today will likely be “up 10-15 basis points ( bps)” across all tenors as the strength of the foreign currency is seen to boost demand for dollar-denominated securities.
The growing uncertainty on the timing of the anticipated rate hike in the world’s largest economy, the trader noted, will also push the market to flee riskier markets.
“Current currency play and the rally of the dollar against the peso will drive investors to go to the dollar-denominated securi- ties rather than the local [ debt papers],” the trader said.
“The dovish tone of the US Fed on the timeline of the US rate increase could also mean a cautious market that would prefer securities from safe-haven economies,” the trader added.
Thus, banks will be asking for higher yields on the local debt securities should they decide to lend to the government.
GOOD DEMAND
Despite this, however, the trader said demand is still expected to be good at today’s auction, with bids expected to be “up to more than twice bigger” than the P20billion offer.
In a separate phone interview, another trader said rates of the T- bills could move higher as they “track the movement of US Treasury rates that are pointing upward.”
“Rates on the 91-day debt papers will be about 10 bps higher and yields on six-month and oneyear securities are expected to be up 25 bps,” the second trader said.
Another trader said rates of T-bills could be “flat to up to plus minus 5 bps” compared to the previously fetched rates.
The 91-day and six-month debt papers, the third trader noted, will be “twice to thrice oversubscribed” and market appetite for 364- day papers is seen “up to twice bigger” than the offer.
During the April 6 auction of the short- dated securities, the government made a partial award of T-bills it auctioned as yields for the debt papers rose across the board, capping the issuance to manage borrowing costs.
It raised just P14.46 billion out of the planned P20-billion borrowing, with the Bureau of the Treasury rejecting some bids as investors sought higher yields.
The Treasury made a full P8billion award of the 91-day debt papers, which fetched a rate of 1.655%, it made a P3.75- billion partial award of 182-day papers versus the programmed P6 billion at a rate of 1.918%, and it rejected some of the bids for the 364-day securities with a coupon rate of 2%, capping the award at P2.71 billion against the planned P6-billion borrowing.
At the secondary market on Thursday, the three- month, six-month, and one-year papers fetched 2.345%, 2.5917%, and 2.8375%, respectively.
Philippine financial markets were closed last Friday for the Labor Day holiday.
Should the bids turn out to be “too high” in tomorrow’s auction, the trader said the Treasury could again reject the banks’ offers since the government is “not really in dire need of cash and does not need to borrow.”
“The government will award only for liquidity reasons. If bids come too high, higher than secondary market rates, the Treasury will definitely not award,” the trader added.
The government plans to borrow up to P135 billion from the domestic debt market this quarter. It will offer as much as P60 billion worth of T-bills and P75 billion worth of Treasury bonds (T-bonds) during the April-June period.
The Treasury awarded P90 billion in government securities last quarter — P40 billion in Tbills and P50 billion in T-bonds — versus its original plan to borrow up to P135 billion during the period. It rejected all bids at a January auction for T-bills and a February auction for T-bonds as it refused to award the papers at higher rates.