Debt yields to tread water, eye on inflation
Reuters
First Posted 12:01:00 09/01/2008
Filed Under: Economy, Business & Finance
MANILA, Philippines -- Debt yields are expected to trade in a narrow range this week as investors keep to the sidelines ahead of August inflation data, which may encourage buying if it offers no surprises, dealers said.
Inflation data is due on Friday. "Everything is in a wait-and-see environment," said a debt trader from a local bank. "All eyes are on the inflation data this Friday. If it comes within the range, we could see some buying."
Yields in the secondary debt market were steady in morning trade Monday after the central bank raised overnight rates by a quarter percentage point on Thursday, which brought the borrowing rate to 6.0 percent, the highest since July 2007.
Two weeks ago, yields in the secondary market dropped and the interest rate curve flattened after the monetary authority issued a circular on withholding taxes on overnight placements with the central bank that rendered the overnight window unattractive. Funds moved out of the central bank and went instead to government debt, particularly T-bonds.
Traders said part of the reason yields on longer-term debt dropped was due to market expectations of an improving outlook on inflation.
The central bank has forecast annual inflation in August to come in a range of 11.8-12.6 percent, indicating a more modest increase in the annual inflation rate compared with big jumps in previous months.
Annual inflation hit a near 17-year high of 12.2 percent in July.
"I think the central bank's forecast is good news," the trader said. "If you look at the month-on-month change this would be less than the 1-2 percentage point increases seen in the previous months so it is a clear indication that inflation is really slowing down."
The central bank earlier said it expects inflation to peak in October but will not exceed 13 percent.
It has revised its average inflation forecasts for 2008 and 2009 at its June and July policy meetings. It currently expects inflation to average 9.0-11 percent this year, and 6.0-8.0 percent in 2009, sharply up from 2.8 percent last year.
Central bank officials said August data would be crucial in determining whether the current inflation estimates would hold.
The government will sell P6 billion ($131 million) worth of 182-day and 364-day Treasury bills at an auction on Monday.
Traders expect the six-month and one-year debt to fetch an average rate of 6.6-6.7 percent and 6.9-7 percent, respectively, from 6.483 percent and 6.95 percent at the July 21 and Aug. 19 auctions.
|
