Treasury bills, bonds likely to fetch lower rates on inflation

GOVERNMENT SECURITIES on offer this week are expected to fetch lower rates as investor demand returns following the holiday season.

The Treasury is offering P20 billion worth of Treasury bills (Tbill) today. Broken down, the government plans to raise P6 billion each for the three- and six-month papers, and another P8 billion in one-year securities.

The government will also offer fresh 10-year Treasury bonds (Tbond) amounting to P20 billion on Tuesday.

Traders interviewed last week said the T-bills on offer today will likely fetch lower rates, with one saying yields could go down by 5-10 basis points across all tenors from the previous auction.

At its previous offering, the Treasury made partial award of the T-bills, borrowing just P4 billion out of the P15 billion it intended to borrow after rejecting all bids for the 182- and 364-day debt papers.

The rate of the three-month paper slid to 5.323%, down 2.7 basis points from the previous auction.

At the secondary market on Friday, the 91-day, 182-day, and 364day T-bills fetched yields of 5.853%, 6.537%, and 6.773%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s Web site.

Meanwhile, the first trader said the 10-year bond auction on Tuesday could fetch a coupon rate of 6.85-7%.

The Treasury fully awarded the 10-year securities it offered last Dec. 4, raising P15 billion as planned versus tenders totalling P49.389 billion. The papers fetched a 6.975% average rate. The government even opened its tap facility to take advantage of the demand, raising P23.136 billion more.

“For the T-bonds, we’re expecting a demand twice the offer amount since it’s the start of the year,” the first trader added. “Investors will start to position so the demand might be strong.”

The trader added that market participants will factor in recent economic data such as the slowerthan-expected December inflation.

Inflation continued to ease last month, registering a 5.1% print in December. This was slower than market expectations as well as the 5.2-6% estimate range of the central bank.

For 2018, headline inflation averaged 5.2% — faster than the Bangko Sentral ng Pilipinas’ 2-4% target range and the highest since 2008’s 8.2%.

“It looks like [the bond auction on Tuesday] will be a good one. Yields dropped [last] week following the move in US Treasuries and the [better-than-expected] Philippine CPI (consumer price index) data,” another trader said in a text message, giving a 6.86.9% forecast range for the 10year bond yield.

The 10-year debt fetched 6.937% at the secondary market on Friday.

For this quarter, the government is planning to borrow P360 billion through domestic means. Some P240 billion will be borrowed this quarter through 12 weekly T-bill auctions. On the other hand, P120 billion worth of T-bonds will also be issued through six fortnightly auctions.

The state plans to borrow P1.189 trillion in 2019 to fund its spending plans. Of the amount, 75% will be sourced domestically while the remainder will be from foreign creditors.

However, the 2019 national budget has yet to be passed by Congress and signed into law, leaving the fiscal program hanging so far. •