GS yields likely mixed as BTr offers more tenors

RATES of government securities (GS) to be offered this week could be mixed, with the Treasury auctioning off more short-term tenors as it looks to raise more funds, which could affect demand dynamics.

On Monday, the Bureau of the Treasury (BTr) will auction off P90 billion in short-term securities.

Broken down, it will offer P40 billion in cash management bills (CMBs) or P20 billion each in 35- and 63-day instruments.

Cash management bills have shorter maturities compared with regular Treasury bills (T-bills). These instruments with market-determined yields are usually issued to provide the government with immediate funding and help stabilize rates.

The Philippines has historically issued these during times of crisis and tight cash flows. The most recent offering of CMBs was in 2020 or during the coronavirus pandemic, when the BTr sold 35-day tenors at several auctions.

Meanwhile, it will also offer P50 billion in T-bills on Monday, or P20 billion each in 91- and 182-day papers and P10 billion in 364-day instruments.

On Tuesday, the government is targeting to raise P30 billion from reissued 10-year Treasury bonds (T-bonds) with a remaining life of seven years and two months.

A trader said in an e-mail that the announcement of the CMB offering helped bring down secondary market yields on Thursday.

“GS trading was generally subdued, but yields gapped down in the afternoon on news that the BTr is planning to issue cash management bills, which can relieve their funding constraint.”

The 35-day papers could be priced at 4.75%-4.8%, likely close to the rates of the one-month securities offered weekly by the Bangko Sentral ng Pilipinas (BSP), while the 63-day bills could fetch yields of 4.85%-4.9%, the trader said.

Meanwhile, the reissued 10-year T-bonds on offer on Tuesday are expected to be “well received,” with yields seen at 7.35%-7.4%.

On the other hand, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the T-bills could fetch mostly higher yields to track comparable benchmarks at the secondary market amid the volatile situation in the Middle East and evolving inflation and monetary expectations.

He said that while most secondary market rates corrected slightly lower last week amid the slight easing in oil prices and the peso’s recent recovery, which could ease domestic inflationary pressures, the market still expects a rate hike from the BSP this week amid lingering price risks due to the Iran war.

At the secondary market on Thursday, yields on the 91-, 182-, and 364-day T-bills rose by 5.48 basis points (bps), 8.61 bps, and 4.26 bps week on week to close at 5.011%, 5.4506%, and 6.107%, respectively, according to the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System website. Meanwhile, the one-month tenor fell by 9.22 bps to yield 4.6129%.

The rate of 10-year T-bond dropped by 3.59 bps week on week to close at 7.4934%, while the seven-year paper, the tenor closest to the remaining life of the papers on offer on Tuesday, went down by 5.45 bps to 7.4308%.

A BusinessWorld poll showed that 15 of 20 analysts expect the Monetary Board to raise benchmark rates by 25 bps for a second straight meeting on Thursday, which would bring the policy rate to 4.75%. Meanwhile, four analysts anticipate a 50-bp hike to bring the key rate to 5%, while one expects the BSP to hold fire.

US and Pakistani leaders forecast a Sunday signing of a long-elusive framework agreement to end months of fighting between the United States and Iran, but Tehran cast doubt over the timing and hardline protesters in Iran voiced opposition, Reuters reported.

Last week, the BTr raised P56 billion via the T-bills it auctioned off, below the P60-billion target despite tenders reaching P81.978 billion.

Broken down, the Treasury borrowed P26 billion via the 91-day T-bills, below the P30-billion program despite demand for the tenor reaching P35.143 billion. The three-month paper fetched an average rate of 5.188%, rising by 4.5 bps from the previous week. Bids accepted had yields ranging from 5% to 5.249%.

For the 182-day debt, the government raised P20 billion as planned as tenders reached P29.592 billion. The average rate of the six-month T-bill was at 5.679%, up by 5.5 bps from the last auction. Tenders awarded carried rates from 5.453% to 5.8%.

Lastly, the BTr sold its target P10 billion in 364-day securities as demand for the tenor totaled P17.245 billion. The one-year paper fetched an average yield of 6.301%, rising by 3.4 bps week on week. Accepted bids had rates from 6.1% to 6.301%.

Meanwhile, the reissued 10-year bonds on offered on Tuesday were last sold on April 21, where the BTr raised P20 billion as planned at an average rate of 6.643%, above its 6.625% coupon. They were also auctioned off on May 19, but the Treasury rejected all bids.

The Treasury is looking to raise P268 billion from the domestic market this month, or P128 billion via T-bills and P140 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.61 trillion or 5.3% of gross domestic product this year. — A.M.C. Sy