RP debt yields to move narrowly before central bank meeting
Reuters
First Posted 12:23:00 07/07/2008
MANILA, Philippines -- Debt yields are expected to move in a narrow range this week, with yields on bonds four years and higher to continue their gradual uptrend ahead of the central bank's rate-setting meeting next week.
Traders said Monday the market has been pricing in a 25 basis point interest rate hike at the central bank's July 17 meeting, after annual inflation rose to 11.4 percent in June, beating government forecasts and the highest in 14 years.
Investors were weighing the possibility of a 50-basis point increase in overnight rates, traders said, with inflation well above the government's 2008 target of 3.0-5.0 percent and the central bank's forecast of 7.0-9.0 percent for the year.
"Yields could trade around 5-10 basis points higher," said a trader from a local bank. "Banks would continue to slowly unload because it would be risky to hold on to longer-term securities at this point due to inflation worries."
"But the yields on the three-year paper and below are expected to hold at current levels because there is demand," the trader said.
The central bank raised interest rates by 25 basis points at a meeting in June, the first increase in almost three years, after inflation climbed persistently since October last year.
Governor Amando Tetangco signaled last week the Monetary Board could vote to hike rates next week after he suggested a tighter policy was needed to keep demand pressures in check.
A Reuters poll of economists last week had a consensus forecast of a total 50-basis point rise in policy rates by the yearend, taking the overnight borrowing rate to 5.75 percent. Five economists said the rate would be at 6.0 percent by the yearend.
"There is demand pressure and the central bank needs to be more aggressive in raising rates," the trader said. "It would probably raise rates gradually, but there is a big chance it would hike policy rates by 50 basis points next week."
The government plans to raise P3.0 billion ($66 million) worth of 91-day treasury bills and P3 billion worth of 364-day treasury bills at an auction at 0500 GMT on Monday.
The 91-day bill was expected to fetch an average rate of 5.75-6.0 percent, up from 3.673 percent at the last successful auction more than five months ago, traders said.
The 364-day debt issue would likely fetch an average rate of 6.75 percent against 6.7 percent at the June 23 auction, they said.
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