Yields on government securities seen moving sideways

MANILA, Philippines — Investors will approach this week’s auctions of government securities with caution as they await the outcome of an upcoming meeting that may determine the pace of the US central bank’s tightening move.

According to a bond trader, the Bureau of the Treasury may see yields for Treasury bills (T-bills) move sideways for the first time this year, snapping a three-week trend of declining rates thanks to inflation calming at the close of 2021.

Further, the Treasury should expect investors to demand yields from a range of 4.65 percent to 4.75 percent for seven-year Treasury bonds (T-bonds).

The trader said investors may come into the auctions with concerns on the results of the Federal Open Market Committee’s (FOMC) meeting on Tuesday and Wednesday. The US Federal Reserve could set the timetable for its looming rate hikes to weather inflationary pressures.

Also, the trader said investors will watch out for the release of the Treasury’s borrowing plan for February. A change in the financing program, whether in frequency or volume, could mean that the government is bracing for the impact of the Fed’s tightening.

The government expects borrowing costs abroad to increase as a consequence of the ongoing taper policy and the impending rate hikes in the US.

The backup plan, however, will require the government to rely its financing program on domestic investors and multilateral lenders through the auction of debt papers and the acquisition of new loans, respectively.

“Factors to look forward to will be the outcome of the FOMC meeting next week and the release of the Treasury’s borrowing schedule for February,” the trader told The STAR.

The Treasury will offer P5 billion in T-bills with tenors of 91 days, 182 days and 364 days, for a total of P15 billion tomorrow. Rates for T-bills declined across the board last week, as investors priced in the four straight months of slowing inflation.

On Tuesday, the Treasury will try to bargain with investors for the P35 billion in reissued T-bonds with a remaining term of six years and six months. All bids for this issuance were turned down in its last two offerings, as yields sought by investors exceeded market pricing.

The government plans to slash its borrowings to P2.47 trillion this year from P3.07 trillion in 2021, as revenue collections recover with the resumption of economic activities.