T-bill and Treasury bond rates set to rise further

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RATES on government securities offered this week could rise further as the market becomes cautious after Fitch Ratings revised its outlook for the Philippines and the detection of local transmissions of the Delta variant of coronavirus disease 2019 (COVID-19).

The Treasury Office (BTr) will auction 15 billion pesos of treasury bills (treasury bills) on Monday, split into 5 billion pesos each in 91, 182 and 364-day debt securities.

On Wednesday the BTr will be offer 35 billion pesos in new 10-year Treasury bonds (T-bonds). The T bond auction has been moved from the original Tuesday schedule, as July 20 is a regular holiday on the occasion of Eid’l Adha.

Two bond traders expect Treasury yields to move sideways or higher by up to 5 basis points (bps).

For 10-year bonds, the FiThe first trader saw his coupon settle between 3.875% and 4.125%, while the second trader gave a narrower forecast range of 3.875% to 4%.

“The market is still very much armed with liquidity and always chooses to place government securities even for longer durations to achieve returns,” the top trader said via Viber.

Investors are likely to continue to assess Fitch Ratings’ revised outlook for the Philippines in the next auction, the trader added.

Last week, Fitch maintained its “BBB” credit rating for the Philippines, but revised its outlook from “negative” to “stable” due to the impact of the protracted coronavirus pandemic.

The “negative” outlook means that Fitch may downgrade the Philippines’ credit rating if it rolls back reforms or departs from the prudent macroeconomic policy framework that leads to ever-larger budget deficits. A weaker medium-term macroeconomic outlook and “declining political credibility” can also lead to a downgrade.

Fitch has maintained the Philippines’ rating at “BBB”, a step above the minimum investment rating, since December 2017.

During this time, the detection of FiThe first cases of local transmissions of the Delta variant of COVID-19 in the country will also be affect yield moves this week, according to the trader.

The Department of Health reported 16 new Delta variant infections on Friday, including 11 locally transmitted. This brought the number of cases nationwide for the highly infectious variant to 35.

It also reported 6,040 new COVID-19 infections on Saturday, bringing the number of active cases to 47,257 so far.

The leading trader said local yields would also be inspired by the recent conciliatory speech by U.S. Federal Reserve Chairman Jerome Powell at a congressional hearing, where he said US employment data- United were “still far” from the progress they are aiming for. before they can reduce central bank support to the economy.

Last week, the BTr fully allocated the 15 billion pesos in treasury bills it auctioned even as rates gradually increased. The short-term securities drew combined tenders worth 42.086 billion pesos.

Broken down, it borrowed the 5 billion pesos programmed via the 91-day papers at an average rate of 1.068%, against 1.044% at the July 5 auction.

The Treasury also raised 5 billion pesos as planned via the 182-day Treasury bills. Six-month bonds reached an average rate of 1.384% against 1.351% previously.

Finally, the government granted 5 billion pesos of 364-day securities at an average yield of 1.593%, higher than the 1.568% quoted for the duration of the previous week.

Meanwhile, the last time the BTr offThe 10-year T bonds issued occurred on June 22 when it raised 35 billion pesos as planned from reissued papers with a remaining maturity of Fifive years and 10 months.

The total bids for the tenor reached P65.091 billion in this auction, higher than the P50.25 billion bids seen in the last round of bonds offered on March 9. The notes were listed at an average rate of 3.185%, compared to 3.732% previously.

On Friday in the secondary market, 91-, 182- and 364-day T-bills were listed at 1.162%, 1.413% and 1.612%, respectively, while 10-year T-bills yielded 3.9097%, on the basis of the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System website.

The Treasury is looking to raise 235 billion pesos from the local market this month: 60 billion pesos through weekly Treasury bill offers and 175 billion pesos from weekly Treasury bond auctions.

The government wants to borrow P3 trillion from domestic and external sources this year to help finance a budget ofFicit reached 9.3% of gross domestic product. – BM Laforga


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