Ten-year bonds on offer may fetch higher rates

TREASURY BONDS (T-bonds) on offer on Tuesday are likely to fetch higher yields as market players expect the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) to hike interest rates this year.

The Bureau of the Treasury plans to raise as much as P20 billion at Tuesday’s auction of fresh 10-year T- bonds set to mature on Jan. 11, 2028.

Traders interviewed last week said they expect yields on the securities to go up by “at least 10 basis points.”

“So far, it should be higher yields. We’re looking at least 10 basis points,” a trader said over the phone on Friday.

“Right now, we’re expecting the Fed to hike their interest rates thrice for the year,” the trader noted.

Another trader said the bond’s coupon rate could land between 5.125% and 5.25%.

At the secondary market last Friday, the 10-year bonds closed with a yield of 5.7946%.

The government last offered 10-year T-bonds on Nov. 7, with the award of the reissued papers reaching just P10.21 billion and fetching a 4.915% average rate. This was higher than the 4.647% rate fetched when the bonds were offered last Sept. 19.

At the December meeting of the Federal Open Market Committee, almost all policy makers agreed to raise the benchmark interest rate to 1.5% by 25 basis points.

“Most participants reiterated their support for continuing a gradual approach to raising the target range,” minutes from the Dec. 12-13 meeting released last week read.

At home, the first trader is said the BSP is also expected to raise its interest rates twice this year.

“BSP[‘s intention to raise its rates is] not yet clear,” the second trader however noted, adding that market players are looking at the inflationary effects of the domestic tax overhaul, as well as the upbeat performance of the peso and the local bourse.

Demand for the 10-year debt papers on offer tomorrow will be “lukewarm,” a trader said.

“It’s a new issue. Usually they don’t do well since liquidity is not yet established. I’m expecting the appetite will only be lukewarm. [ I’m expecting] not that much demand,” the second trader said.

“Market players are defensive, so we might see lower or matched volume,” the first trader said.

The Treasury said it plans to auction off P120 billion worth of Treasury bills and another P120 billion worth of Treasury bonds in the January to March period.

The total amount that the government intends to borrow from the local market is higher than the P200 billion it offered in the last quarter of 2017.

The government borrows from local and foreign sources to fund its budget deficit, which for this year is capped at 3% of the country’s gross domestic product.

The government targets a P888.23 billion gross borrowing plan this year, 22.05% higher than last year.

Of this amount, P176.27 will be from external financing while P711.96 will be sourced locally. •