TREASURY BONDS (T-bonds) on offer tomorrow are expected to fetch higher yields amid negative market sentiment due to global uncertainties, such as heightened chances of policy rates tightening anew this year and unclear fiscal reforms of the new US leadership.

The government plans to raise as much as P15 billion in tomorrow’s auction of fresh five-year T-bonds maturing on Jan. 26, 2020.

Bond traders said in a phone interview over the weekend that banks may request for higher rates from the government for the T-bonds on offer, with demand unlikely to be as strong compared to previous auctions, with markets remaining jittery amid persisting global uncertainties.

“Higher rates are expected. Comparing to the last auction from May, we’re looking at higher yields by 4-4.25 basis points (bps) range, subscription will be oversubscribed twice but with demand not strong,” a trader.

The trader was referring to the May 17, 2016 auction of reissued seven-year T-bonds, where the Bureau of the Treasury raised P25 billion as planned in fresh funds from securities with a remaining life of four years and 10 months. The 2021 bonds fetched an average rate of 3.246%.

“This is because since there is revival of the hawkish Fed given strong US fundamentals, there are talks of interest rate hikes likely to happen in the first half of the year,” the trader added.

Upbeat US inflation in 2016 reinforced hawkish remarks from US Federal Reserve Chair Janet Yellen last week on the need for policy makers to gradually tighten interest rates a few times this year until 2019.

US consumer costs soared in December to 0.3%, bringing full-year inflation for 2016 to 2.1%.

On a similar note, another trader said: “Yields fetched tomorrow will be higher than current market rates [on Friday.]”

At the fixed-income market on Friday afternoon, the five-year debt papers were last quoted at 3.9074%.

TRUMP
The trader likewise noted that banks would be requesting for higher rates, with their bids expected to be sentiment-driven “due to Trump and Yellen,” referring to newly sworn US President Donald J. Trump’s inauguration and his failure to provide further details about his fiscal policies for the US economy.

Mr. Trump was sworn in as the new US President last Jan. 20. His speech once more disappointed markets that were expecting the new leader to shed some light on his fiscal plans particularly on trimming taxes and robust infrastructure spending to boost the US economy.

The trader added that demand is expected to be weak and will only be at par with tenders seen during the three-year T-bond auction held earlier this month.

During the Jan. 10 T-bond auction, the Bureau of the Treasury raised P15 billion as planned as total tenders reached P37.238 billion, more than twice the government’s offer, but with the debt papers quoted at 3.364%.

Asked if the government would decide to fully or partially award the five-year notes, the trader said: “It looks like the government really wants to award these securities but it really depends on how much the demand be from the market.”

In contrast, the other trader said: “Maybe partial, although since the amount offered is small at P15 billion. But I think the government will partially award the T-bonds.”

For his part, BDO Unibank, Inc.’s Jonathan Ravelas said in his weekly outlook: “Short-term and long-term rates moved sideways [last week…] Continue to see rates to move sideways to up [this week.]”

The government plans to borrow up to P180 billion from the domestic market this quarter through offerings of P90 billion worth of both Treasury bills and T-bonds to fund its fiscal deficit.

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