Philippine debt yields seen steady, inflation in spotlight
Reuters
First Posted 12:30:00 05/12/2008
MANILA, Philippines -- Debt yields are expected to edge sideways within a one to five-basis point range this week after rising last week on accelerating inflation as investors wait for fresh leads, traders said Monday.
Yields in the secondary market, which surged 30-50 basis points after annual April inflation jumped to a near three-year high of 8.3 percent, are seen holding steady this week even as surging oil prices heighten inflation concerns.
"The market is at a standstill," said a trader from a local bank. "The tone is still bearish because of rising fuel prices but it's not yet enough to drive the market higher."
Inflation in March was at 6.4 percent from a year earlier.
Traders said the domestic inflation picture remains unclear.
There are concerns that consumer prices might rise to 9.0 percent from a year earlier, way above the government's 3.0 to 5.0 percent inflation target for 2008.
"Inflation normally peaks in May or June, so inflation might come in higher in June at 9.0 percent," the trader said, adding this might make a case for tightening of monetary policy.
Central bank governor Amando Tetangco has said that the inflation goal for the year is at risk, and that the monetary board will act decisively if commodity-fuelled inflation spreads to the broader economy, particularly through wage and transport fare increases.
The country’s central bank kept interest rates unchanged at 5.0 percent for the overnight borrowing rate and 7.0 percent for the lending rate at its policy meeting last month.
The bank has forecast that average inflation may reach 5.5 to 6.5 percent this year, up from its original forecast of 4.0 to 5.0 percent, central bank sources said.
The government also plans to raise P6 billion ($140.7 million) worth of 364-day Treasury bills at an auction at 0500 GMT on Monday.
Traders expect the Bureau of Treasury to reject the bids, which they said would likely be 10 to 20 basis points higher than the average yield of 6.986 percent at the last failed auction on April 28.
Traders said, however, that the government could not afford to keep rejecting offers because it needs to settle P34 billion in maturities next month.
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