THE FIVE-YEAR Treasury bond is expected to fetch a lower rate at tomorrow’s auction amid ample market liquidity and easing inflation, traders said.
The Bureau of the Treasury is scheduled to sell P8.5 billion worth of five-year bonds tomorrow.
A trader said the five-year paper could fetch between 6.15% and 6.19%, 6-10 basis points (bps) lower than the 6.25% coupon rate awarded when the government swapped the five-year paper for older government debts last January.
This would also be 7.8-11.8 basis points lower than the 6.268% average the paper of the same tenor fetched when it was re-issued last April 14.
The five-year bond traded between 6.1%-6.5% at the secondary market last week.
"There is sufficient liquidity in the system," the trader said, adding that there is enough cash even without the maturing government debts this week amounting to P8 billion.
"Rates could still go down but at a slower rate due to the steepness of the yield curve," the trader added.
He said banks may also easily withdraw their placements at the central bank’s special deposit account, which stood at P591.93 billion as of April 8.
Another trader expects the T-bond to fetch between 6.15%-6.175% as low inflation is expected to entice investors to the offer.
April inflation of 4.8%, the lowest in 16 months and lower than the 6.4% in the previous month, roused hopes the central bank would cut rates anew when it meets on May 28.
The central bank has slashed policy rates by a total of 150 basis points since it began its easing cycle in December. The overnight borrowing rate currently stands at 4.5%, a 17-year low.
"[The five-year T-bonds will be] oversubscribed due to lower inflation expectation. There is appetite for the five-year paper," the trader said.
Meanwhile, the peso is expected to continue its rally as the dollar remains weak against most currencies.
The peso closed at P47.25 to a dollar on Friday, the highest in eight weeks.
A currency dealer said market players are likely to test the P46.80-P47.70 range this week, depending on how the market will react to news abroad.
"We think peso appreciation should continue [this week]," she said. — Gerard S. dela Peña
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