Short-term debt yields up across-the-board
MANILA, Philippines—T-bill yields rose across-the-board on Monday (June 27) alongside higher interest rates imposed by central banks worldwide, including the Bangko Sentral ng Pilipinas (BSP), to arrest elevated inflation globally.
The Bureau of the Treasury (BTr) raised a total of P13.95 billion, short of the P15 billion it wanted to borrow, through the three tenors of short-dated debt papers it offered.
The BTr fully awarded P5 billion in the benchmark 91-day treasury bill at an average rate of 1.855 percent, up from 1.759 percent last week. It also awarded all P5 billion in 364-day securities, whose annual rate further jumped to 2.63 percent from 2.454 percent previously.
For 182-day IOUs, the BTr capped Monday’s borrowing at an average rate of 2.4 percent, up from last week’s 2.132 percent. As such, the BTr raised only P3.95 billion from six-month debt paper despite a similar P5-billion offer.
“Rates climbed in the aftermath of the Monetary Board’s 25-basis point (bp) rate lift to cool down inflation,” National Treasurer Rosalia de Leon said, referring to last week’s second-straight interest rate hike of the BSP’s highest policy-making body.
The BSP also last week hiked its inflation forecast for 2022 to 5 percent, above the 2 to 4 percent target band of manageable year-on-year price hikes conducive to economic growth, due to expensive food and oil mainly wrought by the prolonged Russia-Ukraine conflict.
Despite the higher yields it sought, the domestic debt market remained awash in cash such that government securities eligible dealers (GSEDs) were willing to lend the government a total of P27.18 billion across the three treasury bill tenors.
“Markets provided cushion as they see policy rates to continue on a hiking cycle to let steam out of inflationary pressures. Both the BSP and the US Federal Reserve are expected to unleash another 25 bps, if not 50 bps for the BSP in August and a follow-up 75 bps for the Fed,” De Leon said.
Notwithstanding the high-interest rate environment, De Leon said long bond tenors, similar to the new 10-year IOUs issued last week, may become a mainstay in the second half’s domestic borrowings program due to “good demand.”
The BTr also expects rate hikes by central banks here and abroad to rein in inflation within target and eventually temper the upward trajectory in debt yields, De Leon added.
The BTr this week will release its weekly T-bills and bonds auction schedule for July, the first month of the incoming Marcos administration.
In its latest Asia Bond Monitor report for June released on Monday, the Asian Development Bank (ADB) noted that across emerging East Asia, bond market growth was slowing amid “weakened financial conditions and global economic headwinds” such as high global inflation, slower Chinese economic growth, as well as “larger-than-expected impacts” of Russia’s invasion of Ukraine.
“Monetary stances in emerging East Asia remain largely accommodative, but persistent inflationary pressure and accelerated monetary tightening by the US Federal Reserve could lead to further monetary tightening in the region. The region’s economies will continue to recover, but growth could moderate this year,” the ADB’s chief economist Albert Park said in a statement.
In the case of the Philippines, the latest ADB data showed that peso-denominated bonds rose 6.5 percent quarter-on-quarter to P10.43 trillion as both the government and corporations borrowed more.
However, the Manila-based multilateral lender said local bond yields rose by an average of 61 bps across all tenors from end-February to mid-May.
“The yields on three- to 10-year bonds had the largest increases, ranging from 74 bps to 88 bps. Smaller yield increases were seen at the shorter end of the curve (one-month to one-year maturities), averaging 32 bps. The movements caused the yield spread between the two- and 10-year tenors to widen from 229 bps to 253 bps,” the ADB said.
“The large yield increases reflect the defensive stance of investors toward government securities prompted by surging inflationary risks, the impending monetary tightening of the BSP during the review period, and policy uncertainty induced by the recently concluded national elections,” according to ADB.
“On the international front, aggressive monetary policy normalization by the US Federal Reserve and the heightened global uncertainty caused by the Russian invasion of Ukraine also contributed to the yield hikes,” it said.
“Yields on the shorter end of the curve had relatively smaller increases as investor preferences were skewed toward these tenors because they serve as a vehicle for investors to park money while waiting for more clarity on the direction of the market,” it added.
“On the other hand, larger yield increases for bonds with longer maturities were due to investors seeking a higher risk premium amid expectations of continued high inflation and multiple interest rate hikes by the BSP and the Federal Reserve in coming months,” ADB said.
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