Gov’t debt to fetch higher rates

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Bureau of Treasury (BoT)

GOVERNMENT SECURITIES on offer this week will likely fetch higher rates anew, with bids on the seven-year Treasury bonds (T-bond) seen to be rejected, as investors price in the possible policy tightening from the local and US central banks.

The Bureau of the Treasury (BTr) is offering P15 billion worth of Treasury bills (T-bill) today. Broken down, the Treasury plans to raise P4 billion through the three-month papers, P5 billion via the six-month debt and another P6 billion in one-year T-bills.

The BTr will also auction off P15 billion worth of reissued seven-year T-bonds tomorrow with a remaining life of six years and six months.

Bond traders said last week that the T-bills on offer on Monday will likely fetch higher yields compared to the previous auction.

“Most likely, 10-20 basis points (bp) all across from the previous auction, but safe to say 15 bps,” a trader said in a phone interview on Friday.

Meanwhile, another trader said the T-bills will likely fetch rates 5-10 bps higher than yields at last week’s auction.

The BTr borrowed just P8.316 billion out of total tenders amounting to P20.7 billion during the T-bills auction last Monday, rejecting all bids for the 91-day papers.

Rates on the 182- and 364-day debt rose to 4.597% and 5.4%, respectively.

The trader said yields on the seven-year bonds could likewise climb.

“The seven-year [papers] will go up as well. From 6.9-7.2% if awarded, but they can opt to reject as well just like the other tenors,” the second trader noted.

The Treasury opted to reject all tenders for its P15-billion offer of reissued seven-year papers on July 16. Bids placed by banks reached P13.97 billion, falling short of program.

Had the BTr accepted all bids at that offering, the papers would have fetched an average rate of 6.621%, 64.5 bps higher than the previous auction.

The seven-year T-bonds carry a 5.75% coupon.

“For the seven-year bonds, we’re looking at 6.85-7%. In other words, all bids were pulled back with the impending hikes,” the first trader noted.

At the secondary market on Friday, the three-month, six-month and one-year T-bills fetched 4.0118%, 4.519% and 5.3831%, respectively, while the seven-year bonds were quoted at 6.869%.

The Bangko Sentral ng Pilipinas (BSP) is widely expected to tighten its policy settings anew on Thursday.

In a BusinessWorld poll conducted last week, at least 15 economists expect the central bank to increase its benchmark rates by another 50 bps to quell inflation expectations.

BSP Governor Nestor A. Espenilla, Jr. had committed to “take strong immediate action” in response to the faster-than-expected 6.4% August inflation print.

The monetary authority has raised borrowing costs by a cumulative 100 bps since May, with rates currently ranging 3.5-4.5%.

Meanwhile, the US Federal Reserve’s policy-setting Federal Open Market Committee (FOMC) is also seen to raise rates at its meeting this week.

Reuters reported bond traders are raising bets the Fed will raise its interest rates not only this week but also again in December and twice more in 2019 due to tightening job market and rising inflation.

“Most likely, the BTr would reject all bids on the seven-year bonds so it depends on them whether they would accept it or not,” the first trader added. “If they accept that, may tendency lalong magkaka-drought (there’s a tendency to have more man drought).”

The Treasury is raising P300 billion from the domestic market this quarter through auctions of securities, offering P195 billion in T-bills and another P105 billion in T-bonds.

The government plans to borrow P888.23 billion this year from local and foreign sources to fund its budget deficit, which is capped at 3% of the country’s gross domestic product. — K.A.N. Vidal