PH bond yields seen to stay low

MANILA, Philippines—Yields on Philippine government bonds are expected to stay low for the rest of the month but upward pressure from rising inflation may kick in next month, according to DBS Bank.

The Singapore-based bank said in a research note that last week’s increase by 25 basis points in the Bangko Sentral ng Pilipinas’ policy rates would also influence rate adjustments in June.

The increase was the second this year, bringing the BSP’s overnight borrowing rate to 4.5 percent and lending rate to 6.5 percent.

Another factor is the shrinking budget deficit in the first quarter, which settled at P26 billion, or just about a fifth of the year-ago level of P134 billion.

Even then, DBS said Malacañang would have no problem to keep the full-year budget deficit to no more than P300 billion even if it boosted public spending on infrastructure, given the sharply lower spending in the first quarter.

In making this observation, DBS noted that government spending in the first quarter of 2010 was high due to the national elections.

“Given that yields have been on a downward trend since mid-March and both the current as well as the capital account show strong surpluses, the Philippine government will likely borrow actively in the long end of the domestic bond market in the coming months,” the bank said.

Current account and capital account are the two main components of a country’s balance of payments, which is a record of all monetary transactions between itself and the rest of the world.

Current account refers to the balance of the inflow and outflow of goods, services and other funds such as income, donations and debt payments, while capital account shows the inflow and outflow of investments.

“Philippine government bond yields will likely stay low in May before rising in June on faster inflation rates,” DBS said.

As of April, inflation inched up to a 12-month high of 4.5 percent year on year, bringing average inflation for the January-April period to 4.2 percent.

In the most recent auction for treasury bonds, the government sold P9 billion worth of 10-year debt paper, for which the yield averaged at 6.445 percent.