Bureau of the Treasury (From the Facebook account of the bureau)
MANILA, Philippines—The Bureau of the Treasury (BTr) on Monday (April 4) raised P15 billion from short-dated T-bills — the first full award since Vladimir Putin started his campaign to destroy Ukraine, as the benchmark 91-day debt paper saw bid rates decline.
The BTr raised P5-billion each across the three treasury bill tenors, which attracted a total of P54.6 billion in bids, making the auction 3.6 times oversubscribed.
National Treasurer Rosalia de Leon attributed the three-month IOUs’ lower average rate of 1.38 percent from 1.587 percent last week to creditors positioning in the front end of the yield curb amid “faster inflation, expected surge in Fed rate, and possible rate action from the Bangko Sentral ng Pilipinas (BSP) in the second half” of this year.
Market watchers expect the US Federal Reserve to jack up rates by 50 basis points (bps) next as a follow-through to its 25-bps policy hike last month.
On the flip side, rates of the 182- and 364-day IOUs continued to rise. Six-month securities were accepted at 1.781 percent, up from 1.607 percent two weeks ago. One-year T-bills fetched an annual rate of 1.883 percent, up from 1.792 percent last March 21.
Last week, the BTr rejected tenders for the two longer tenors as rates would have jumped to over 2 percent in the case of the 364-day debt.
De Leon attributed the jitters, hence upward yields sought for the lengthier treasury bills, to the BSP’s higher and above-target inflation forecast of 4.3 percent for 2022, plus the central bank’s looming interest rate hikes.
In a report on Monday, UK-based think tank Oxford Economics said that alongside projected 50-bps policy rate hike by the BSP this year, domestic bond yields would likely jump by 110 bps by yearend, topping the Asia-Pacific region.
In the Philippines and India, “yields could rise further should external financial conditions tighten,” Oxford Economics lead Asia economist Sian Fenner said.
“The negative terms of trade shock and increase in inflation from higher oil and commodity prices is particularly negative for bond returns of current account deficit economies — India, Thailand, and the Philippines. These are some of the largest net commodity importers in the region and face high domestic inflation passthrough risks,” Fenner said. Expensive oil bloats the trade-in-goods deficit, and, in turn, the current account deficit as the bigger import bill would entail more US dollar outflows outpacing dollar-earning exports.
“We expect the subsequent widening in the current account deficits will place the Philippine peso, Indian rupee, and Thai baht under additional depreciation pressure over the coming quarters. This will also weigh on bonds,” Fenner said.
Fenner said that while Oxford Economics “expects risk sentiment to improve in late 2022, we think the Philippines will see the largest increase in yields — up a total of 110 bps by the end of the fourth quarter of 2022.”
Fenner noted that amid rising US 10-year Treasury yields on market expectations of “more decisive Fed policy tightening,” most Asian bond spreads — except in the Philippines — had narrowed.
On inflation, Fenner said Oxford Economics sees the headline rate in the Philippines and Thailand “to hover above 5 percent year-on-year over the coming quarters.”