Yield on 20-year Treasury bonds seen sideways

TREASURY BONDS (T-bonds) on offer tomorrow are expected to fetch mixed returns amid expectations of strong investor appetite for longer-termed papers and bets of further tightening among several central banks offshore.

The government plans to raise as much as P15 billion in tomorrow’s auction of reissued 20-year T-bonds with a remaining life of 19 years and 10 months.

One bond trader said bids for the papers could settle within 5.15% to 5.275% amid apparent demand for the long-term notes.

“Looks like there is demand for this paper, so yields should be slightly lower because also of the recent rally in US Treasuries which dragged yields down,” the trader said on Friday.

At the fixed- income market on Friday afternoon, the 20-year debt papers were last quoted at 5.1626%.

In contrast, another trader said rates to be requested by banks could move up, still on the back of hawkish rhetoric from major central banks and higher oil prices.

“We are looking at 10 to 15 basis points ( bps) higher compared to the previous auction. Reasons are still the same, leaning towards hawkish sentiments among central banks, higher oil and repricing since we’re higher by around five to 10 bps on the curve,” the trader said on Friday.

At a June 27 auction of reissued 20-year T-bonds, the Bureau of the Treasury raised P15 billion as planned from the securities with a remaining life of 19 years and 11 months after bids by banks went down, aligning with market expectations. The papers were quoted at an average rate of 5.035%.

Late last month, the world’s top central bankers — namely the US Federal Reserve, Bank of England ( BoE,) European Central Bank (ECB) and Bank of Japan ( BoJ) — delivered what seems to be a collective message that quantitative easing is being put back in its box and interest rates are going up.

This came after hawkish remarks from the Fed regarding their plan of tightening policy rates anew before the year ends after hiking interest rates for the second time this year during their June policy meeting.

However, weak economic data released recently has prompted investors to bet that future rate hikes may be pushed back.

Last week, the ECB reaffirmed its ultra-easy policy view and kept options open in boosting its bond purchases if needed.

The BoJ also kept monetary policy steady on Thursday but once again pushed back the timing for achieving its ambitious inflation target, reinforcing views it will lag well behind other major central banks in scaling back its massive stimulus program.

For its part, ANZ Research said in its July 21 Asia Macro Strategy Weekly report that it expects rates for the 20-year papers to range between 5.15 to 5.25%, with estimates based on the current yield curve.

It also noted that bulk of the appetite will come from local investors rather than offshore after the peso’s weak performance and due to the T- bond’s long maturity.

ANZ Research added it expect bids to be higher versus the May 16 20- year T- bonds auction “given the risk of rising term premium in this environment.”

The securities on offer tomorrow were first auctioned off last May 16, where the government raised P15 billion as planned, with the paper fetching a coupon rate of 5.104%.

“The long tenor of 20-year will likely see demand confined to long-term, buy-to-hold local investors who may demand a higher term premium given the global environment toward reduced monetary accommodation,” ANZ Research said.

“The external environment remains highly fluid even though

yields have fallen in the past week,” it added.

The government is looking to borrow up to P180 billion from domestic sources this quarter through offerings of P90 billion worth apiece of both Treasury bills and T-bonds to fund its fiscal deficit and support a growing economy.

It secured P150.602 billion from the sale of government-issued papers during the first quarter, lower than its P180-billion program. —