T-bond yield to hit 6% in Q4, DBS Group says

MANILA, Philippines—The yield on 10-year Treasury bonds is expected to rise slightly to 6 percent in the fourth quarter as liquidity in the local market normalizes, the DBS Group said.

“Liquidity conditions should normalize gradually in the fourth quarter and that should mean some upward pressure for bond yields,” the Singapore-based group said in a research note.

“The sharp fall in three-month Phibor [interbank offered rates within the country] to below one percent earlier this month from above 4 percent in July is evidence of a substantial buildup of excess liquidity, which will take time to unwind,” DBS added.

In a similar movement, the average yield on the 91-day Treasury bill fell to a historic low of 0.438 percent in the first week of this month.

However, the Bureau of the Treasury agreed last week to a 19 basis-point hike to an average of 0.69 percent.

National Treasurer Roberto B. Tan said the domestic market was correcting toward higher rates and that the government was “trying to follow that direction” and help normalize interest rates.

As for 10-year T-bonds, the most recent primary market auction held two weeks ago saw the average yield slide by 41.1 basis points to 5.485 percent.

The latest average was 6.47 basis points higher than the 5.5497 percent for concurrent done deals in the secondary market.

DBS said it anticipates 10-year rates to rise, even though expectations that policy rates will remain unchanged for the rest of the year might keep government bond yields low.

The group believes that the monetary authorities will refrain from any form of tightening in the fourth quarter despite the likelihood that annual inflation rates will stay high relative to the Bangko Sentral ng Pilipinas’ 3-5 percent target range.

DBS noted that over the past 10 years, annual inflation in the Philippines has averaged 5.09 percent.