Rates of T-bills to move sideways as retail bond issue saps demand

RATES OF THE Treasury bills (T-bill) on offer today will likely move sideways with an upward bias amid tepid demand for the short-term securities following the recent retail Treasury bond (RTB) sale.

The Bureau of the Treasury (BTr) is offering P20 billion worth of T-bills on Monday, broken down into P6 billion each for the three- and six-month papers and P8 billion in the one-year instruments.

A trader said yields on the Tbills on offer today will climb by five basis points (bp) across all tenors from the previous offer.

Last week, the government raised P20 billion as planned from the T-bills auction as tenders reached P31.771 billion.

Rates went down across all tenors to 5.716%, 5.936% and 6.018% for the three-month, six-month and one-year papers, respectively.

At the secondary market on Friday, the 91-, 182- and 364-day IOUs were quoted at 5.676%, 5.905% and 6.054%, respectively.

“The question is the liquidity. There was still a supply overhang on the RTB, so most of the banks’ money are in the recently issued security,” the trader said in a phone interview.

“For the T-bills auction, it will still be fully awarded, but probably 1.5 times. Most of the liquidity went to the RTB,” the trader added.

The government raised P235.935 billion from its 22nd RTB sale but offers from individual and institutional investors were “much higher,” according to the Treasury, although no exact figure was given.

The five-year bonds carry an interest rate of 6.25%, which is higher than rates at the secondary market and from the yield fetched in previous offerings.

Another trader said the oneyear T-bills will likely fetch a rate between 6-6.1%, while the threeand six-month debt instruments will fetch steady to slightly higher yields.

“I’m not really watching [the three- and six-month papers] now... We see more demand for five to 10 years tenor now,” the second trader said in a text message. “Normally this happens when investors are convinced on CPI (consumer price index) outlook.”

“That said, people normally demand higher yields for short tenors because there’s reinvestment risk,” the second trader added.

Headline inflation in February stood at 3.8%, easing for the fourth straight month and settling within the 2-4% target of the government for this year.

On the other hand, the first trader noted that expectations of a cut in banks’ reserve requirements will likely temper the upward bias in yields.

Some economists in a BusinessWorld poll see the Bangko Sentral ng Pilipinas trimming the reserve requirement ratio of big banks by a percentage point from the current 18% at its meeting this week. Doing so will unleash billions of pesos into the market, which may be parked in debt papers.

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