November 21, 2017 | MANILA, PHILIPPINES

T-bills likely to fetch higher rates

TREASURY BILLS (T-bills) on offer today are expected to fetch higher yields across the board, tracking the direction of US Treasuries and offshore oil prices, and due to the hawkish stance of major central banks on monetary policy.

The government plans to raise as much as P15 billion in T-bills at today’s auction: P6 billion in 91-day debt papers, P5 billion in 182-day notes and P4 billion in 364-day papers.

Bond traders said they expect rates requested by banks to inch higher compared to the previous auction as local yields continue to follow the direction of US Treasuries.

“Yields will be higher by 10 basis points (bp) across the board ideally because global yields have gone up, and local government securities has been 20 bps higher in the past weeks, so we’re expecting bids to be higher for this auction,” one trader said by phone on Friday.

Similarly, another trader said: “We are looking at a 10-15 bps upward bias across as we’re still looking at movement in offshore oil prices and US Treasuries, which are the indicators of this auction’s yield movement.”

The government only raised P12.5 billion out of its P15 billion program during its offering of Treasury bills last July 3 after bids by investors rose across the board. The papers were met with P24.538 billion in total tenders, still above the planned borrowing.

The 91-day T-bills received a total of P12.005 billion in tenders, double the programmed P6 billion, with the government fully awarding the papers quoted at an average rate of 2.126%.

However, the Treasury only raised P4.131 billion from the 182-day securities, less than the planned P5-billion borrowing. The papers fetched a 2.496% yield and offers came in at P5.631 billion.

Lastly, the 364-day T-bills were also partially awarded, with the state only raising P2.37 billion out of the programmed P4 billion fund raising, even as bids reached P6.902 billion. The year-long tenor fetched an average rate of 2.926%.

At the secondary market on Friday, the three-month, six-month, and one-year papers fetched 2.8264%, 2.9929%, and 2.8699%, respectively.

Asked what other factors could contribute to investors’ decision to bid on the short-termed debt notes, the trader said: “The market sentiment on the rhetorics of global central banks and the US Federal Reserve.”

Last month, the world’s top central banks -- namely the Fed, Bank of England , European Central Bank, and Bank of Japan -- delivered what seems to be a collective message that quantitative easing is being put back in its box and interest rates are going up.

“So since this is a short-term issuance, there’s an immediate reaction on their comments so there’s an effect in yields, plus the increase in rates as well as the demand might also be influenced in steadily increase in TDF (term deposit facility) rates,” the trader mentioned, noting yields seen for the Bangko Sentral ng Pilipinas’ TDF have been rising in the past three to four auctions.

Meanwhile, the other trader said Fed Chair Janet L. Yellen’s recent comments on monetary policy could push local yields higher.

The US economy is healthy enough for the Fed to raise rates and begin winding down its massive bond portfolio, though low inflation and a low neutral rate may leave the central bank with diminished leeway, Ms. Yellen said in her US Congress testimony last Wednesday.

Asked how much demand the T-bills will attract in today’s auction, one trader said, “There’s still appetite, for same reasons as the previous auction -- because of huge maturities in the second quarter.”

The other trader said the papers will be oversubscribed.

The government plans to borrow as much as P195 billion from domestic sources this quarter through offerings of P105 billion worth of T-bills and P90 billion in Treasury bonds. -- Janine Marie D. Soliman