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Gov’t debt rates seen mixed

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GOVERNMENT SECURITIES (GS) on offer this week will likely end mixed propelled by higher US Treasury yields and amid anticipation of policy action from the local central bank.

The Bureau of the Treasury (BTr) is offering P15 billion worth of Treasury bills (T-bill) today, broken down into P4 billion and P5 billion via three- and six-month papers, respectively, and P6 billion from the one-year debt papers.

The BTr will also offer on Tuesday reissued 20-year Treasury bonds (T-bond) worth P20 billion with a remaining life of 19 years and nine months.

Traders interviewed said rates of the T-bills to be auctioned off Monday will move sideways or a tad higher from the previous auction.

“For the T-bills, yields may be higher by five to 10 basis points (bp) from the previous auction. But since the one-year [paper] was rejected last time, it may climb 5-10 bps higher from the secondary market,” a bond trader said in a phone interview Wednesday.

Last week, the government made a partial award of the T-bills it placed on the auction block, borrowing just P7.264 billion out of the programmed P15 billion as it rejected all bids for the one-year papers.

Yields on the three- and six-month papers climbed a tad to 5.614% and 5.987%, respectively.

At the secondary market on Friday, the three-month, six-month and one-year securities were quoted at 5.691%, 5.962% and 6.102%, respectively, according to the Philippine Dealing System website.

“T-bill rates for auction will likely move sideways or 5 bps higher from the previous auction as elevated US Treasury yields for most of last week dampened sentiment in the GS market,” Robinsons Bank Corp. peso sovereign debt trader Kevin S. Palma said in a message on Wednesday.

He added that “upbeat” economic data from China have caused US Treasury yields to pick up.

On Wednesday, China said gross domestic product (GDP) grew 6.4% in the first quarter, slower than the 6.8% recorded in the same period in 2018.

Apart from Chinese GDP growth, industrial production, retail sales as well as fixed asset investments posted higher expansion, beating market expectations.

Mr. Palma added that reinvestment requirements may propel demand for this week’s auction as there are debt papers maturing on April 24 and 26 worth some P34.5 billion.

For the T-bonds, the first trader said the 20-year IOUs may fetch a rate from 6.05-6.25%, much lower compared to the yields quoted when the debt papers were last offered earlier this year.

The BTr raised P20 billion through fresh 20-year T-bonds it offered on Jan. 22, receiving overwhelming bids worth P50.921 billion. It fetched a coupon rate of 6.75%, with an average rate of 6.716%.

“Since the initial issuance was still at the beginning of the year and the market already rallied, we expect a significantly lower rate for the 20-year papers, but still in line with the secondary market,” the first trader said.”

Based on the PHP Bloomberg Valuation Service Reference Rates, the 20-year debt was quoted at 6.051%.

Mr. Palma added that the rate of the 20-year bonds will be much lower versus the last time it was offered as “we near BSP’s (Bangko Sentral ng Pilipinas) policy easing” through a cut in policy rate or reserve requirement ratio (RRR).

BSP Governor Benjamin E. Diokno earlier said a cut in benchmark interest rates, currently at the 4.25-5.25% range, will be considered at the May 9 policy review of the Monetary Board.

He also floated the possibility of a reduction in big banks’ RRR, which is currently at 18%.

“[S]ince the market still waits for the timing, bids may come in slightly higher than where it last traded in the secondary market,” Mr. Palma added.

The government plans to borrow P315 billion from the domestic market this quarter, broken down into P195 billion in T-bills and P120 billion in T-bonds.

It is looking to borrow some P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of the country’s gross domestic product. — Karl Angelo N. Vidal

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