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Gov’t securities to fetch mixed rates on Fed bets

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Facade of the Bureau of Treasury building — BW FILE PHOTO

YIELDS ON government securities on offer this week will likely end mixed amid concerns on US Federal Reserve rate hike.

The Bureau of the Treasury plans to raise a total of P35 billion from the Treasury bonds (T-bonds) and Treasury bills (T-bills) this week.

Broken down, for the T-bills, the government will auction off P5 billion in three-month, P4 billion in six-month, and P6 billion worth of one-year papers tomorrow.

Meanwhile, the Treasury will also raise P20 billion via fresh seven-year T-bonds on Wednesday which will mature on April 12, 2025.

A bond trader interviewed on Friday said yields on the T-bills, particularly the three-month papers, will move sideways or lower since investors will likely park their funds in the short end of the curve.

“For the T-bills, the 91-day [papers] might see sideways to lower because of the supply. For the seven-year bonds, I’m looking at higher yields… 5.75-6%,” the trader said in a phone interview.

At the secondary market on Friday, the three-month T-bill fetched a yield of 3.127%, while the six-month and one-year papers were quoted at 3.5875% and 3.3186%, respectively.

Meanwhile, the yield on the seven-year T-bonds closed at 6.4571% last Friday.

Another trader added that the three-month T-bills will likely be two to three times oversubscribed, while demand for the seven-year bonds will be lukewarm as investors will likely hesitate to place their funds in the longer tenor since the Fed’s rate hike path is still unclear.

“So far, we still don’t have the rate trajectory. The forecast is two to three more hikes this year, but with the issues on the trade war, it seems that the Fed officials are reluctant if they can push through with the rate hike path,” the second trader said, adding that this will prompt investors to demand for higher rate for the seven-year T-bonds.

“If they foresee that the rates would go up so much this year, there will be much more demand on the bonds. But for now, everyone [is still] cautious [and will lock their funds on the shorter end].”

During the March meeting of the Federal Open Market Committee, the Fed hiked its benchmark funds rate by a quarter-point. Fed officials also upgraded their outlook for the American economy, suggesting a steeper path of rate adjustments until 2020.

Fed Chair Jerome H. Powell said on Friday that the monetary authority will likely need to keep raising interest rates to keep inflation under control, Reuters reported.

During his speech, Mr. Powell vaguely addressed the escalating tension between the US and China over trade policies, saying that it is too soon to know if the issue would take toll on the economy.

The government is set to borrow P325 billion from the domestic market in the second quarter of the year through auctions of securities. This is higher than the P240 billion it offered in the first quarter and the P180 billion placed on the auction block in the same quarter last year.

The government plans to borrow P888.23 billion this year from local and foreign sources to fund its budget deficit, which is capped at 3% of the country’s gross domestic product.