Stronger demand for government debt papers expected

MANILA, Philippines — The rates for government debt papers  may increase  this week as investors demand extra security due to risks posed by the spread of the Delta variant and the looming revert to lockdown.

The Bureau of the Treasury will auction P15 billion in Treasury bills (T-bills) in benchmark 91-day, 182-day and 364-day tenors today, followed by P35 billion in reissued 10-year Treasury bonds (T-bonds) tomorrow.

Bond traders interviewed by The STAR said they anticipate T-bill rates to move sideways or drop by an average of five basis points as investors look to long-term government securities as safer haven to park their funds.

On the other hand, the rate for the reissued T-bonds is expected to go up by 0.4 basis point to 3.924 percent from 3.920 percent in its last auction. Traders said debt papers with maturities of 10 years and more that will be offered in August may fetch higher rates.

“We expect the bonds to steepen the curve following the release of the Bureau of the Treasury’s borrowing plan for August. Most of the bonds hold maturities for a longer period, and we project yields to be higher in the long end and lower in the short end,” a trader said.

“Our expectations are: sideways to five bps lower for T-bills, and 3.924 percent for T-bonds,” the trader added.

Another trader warned investors may either stay away from the auctions, or demand higher rates, in view of a looming hard lockdown in Metro Manila.

The trader said the spread of the Delta variant that forced the government to revert the nation’s capital to enhanced community quarantine (ECQ) could also discourage investors to participate in the auctions on uncertainties in economic recovery.

According to the National Economic and Development Authority, the economy will suffer at least P210 billion worth of losses in Metro Manila’s tightening to ECQ from Aug. 6 to 20.

Traders also said the impending return to lockdown would impact the government’s plan to borrow P200 billion through the sale of T-bills and T-bonds.

“We expect that there may be a partial award in the 20-year tenor. However, we expect that the other securities will be issued in full.”

One trader said the local market would move against the bond activity in the United States, where investors may hold on to their cash to assess how the results of the latest Federal Open Market Committee (FOMC) meeting may affect securities trading.

The FOMC convened last week to evaluate inflation and employment in the US, and decided to keep interest rates at near zero and maintain the pace of bond purchases.

“Generally, our bond market moved against the trend in the US market following the results of the FOMC meeting. Treasury yields went down when the Fed published its results, but the local market maintained its push upward,” the trader said.

The government plans to raise P60 billion in T-bills in August. It also looks to sell P35 billion in T-bonds with maturities of 10 years, seven years, 20 years and 11 years, in that order.

Further, the government seeks to borrow P3.02 trillion this year in an effort to speed up measures to contain the spread of the virus. It will obtain more than 85 percent of the 2021 debt from local sources.