Higher yields on government securities seen in September

MANILA, Philippines — Investors expect interest rates on government securities to rise next month due to the possibility of an uptick in inflation, according to bond traders.

Bond traders interviewed by The STAR said investors may seek higher yields from their Treasury bills (T-bills) and Treasury bonds (T-bonds) purchases as inflation is seen picking up for the remaining months of the year.

“Inflation print will dictate both the rates and demand for government securities in September, as investors anticipate an upswing in commodity prices due to recent typhoons,” a trader said.

Further, the trader warned that failure to prevent the resurgence in COVID-19 infections may also change auction patterns. The trader said investors, for their part, would keep an eye on safe haven assets like T-bills for as long as the spread of the Delta variant has yet to be contained.

“Investors will likely demand increased rates in September due to risks here and abroad brought about by the pandemic. They will also adjust their activities on a day to day basis depending on the developments,” the trader said.

Metro Manila operates under modified enhanced community quarantine which has been extended until Sept. 7.

The Bureau of the Treasury will auction on Tuesday P15 billion worth of T-bills and on Wednesday P35 billion worth of reissued five-year T-bonds.

Another trader said T-bill rates may move sideways next week while yields for T-bonds may drop by at least 39.5 basis points.

“For T-bills, we expect rates to move sideways like in previous auctions. For T-bonds, we project that yields will range between 2.7 percent and 2.9 percent,” the trader said.

Last week, rates for the 91-day T-bills went up by 1.1 basis points to 1.077 percent, while that of the 182-day tenor moved up by 0.1 basis point to 1.408 percent. In contrast, yields for the 364-day securities fell by 0.5 basis point to 1.612 percent.

The reissued five-year T-bonds, with a coupon of 3.375 percent, fetched a rate of 3.295 percent in the previous auction.