Rates of 3-year bonds to climb
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by Land Asia Listings
- February 8, 2017
- News
- 0
TREASURY BONDS (T-bonds) on offer tomorrow are expected to fetch higher yields, tracking the direction of US Treasuries, mainly due to negative market sentiment caused by political noise abroad as well as domestic concerns on cash supply and the normalization of inflation.
The government plans to raise as much as P15 billion in tomorrow’s auction of three-year T-bonds with a remaining life of two years and 11 months.Bond traders said banks will likely request for higher rates from the government for the T-bonds on offer amid a jittery market in light of uncertainties offshore, although demand will likely be at par with the offer size.
“We see the index currently at 3.375-3.635% versus last auction and we are still expecting demand at P15 billion or a little over P15 billion,” one trader said.
The government raised P15 billion as planned from its Jan. 10 offer of fresh three-year bonds maturing on Jan. 12, 2020 after total tenders reached P37.238 billion, more than twice the amount offered. The T-bonds fetched an average rate at 3.364%.
Due to strong demand from investors at that auction, the Bureau of the Treasury opened a tap facility on the same day to accommodate more investors. However, it remained untapped at the close of the offer window.
At the fixed-income market on Friday afternoon, the five-year debt papers were last quoted at 3.4215%.
Asked what the market’s drivers will be, the trader said: “The normalization of domestic inflation, on which January data is to be released [tomorrow] and the Bangko Sentral ng Pilipinas’ forecast was between 2.3% and 3.3%.”
The central bank last week said that the average rise in prices of widely used goods and services may have picked up in January on the back of higher oil costs and fresh hike in taxes imposed on “sin” products.
“Dealers and investors are also concerned with supply risk, meaning the Bureau of the Treasury has made the auctions more frequent for first quarter and volumes are higher,” the trader added.
Former National Treasurer Roberto B. Tan had said that the government decided to hold its auction weekly for this quarter due to the “volatile” market environment, with investors preferring to hold on to their cash rather than investing in debt papers.
The trader added that aside from concerns at home, the market is also looking at global developments and uncertainties, particularly “political risk from abroad in the US and euro zone.”
On a similar note, another trader said: “Right now, markets are tracking more on US treasuries and actually, US treasuries are moving in response to whatever [US President Donald J.] Trump says, what his policy direction will be and what he will say over the weekend will affect the market’s level of interest in the auction.”
Reuters reported that the yield curve on US Treasuries was the steepest in a month and a half last Friday primarily due to softer-than-expected US wage growth in January, with average hourly earnings only rising to three cents or 0.1% last month.
Still, despite disappointing wage data, the US Labor Department bared that non-farm payrolls increased by 227,000 jobs in January, hitting its largest gain in four months.
“Market will also demand higher rates than the coupon rate, around three-and-a-half to 3.4%,” the trader added.
For their part, analysts at ANZ Research said in a research note that they continue to anticipate the market’s cautious stance amid global uncertainties hovering Mr. Trump’s unclear plans for the US economy.
“Overall, we expect short-dated auctions to do better than long bond issuances, given the subdued appetite for duration seen in most markets,” it added.
The government is planning to borrow up to P180 billion from the domestic debt market this quarter through offerings of P90 billion worth of both Treasury bills and T-bonds to fund its fiscal deficit.
