‘Tempered’ rate cut hopes pushed up T-bond yields

MANILA, Philippines  — The government was able to raise its planned amount of borrowings during Tuesday’s sale of seven-year Treasury bonds (T-bonds) despite higher rates sought by local creditors digesting the recent hawkish signals from the Bangko Sentral ng Pilipinas.

The Bureau of the Treasury borrowed its target amount of P30 billion in Tuesday’s T-bonds auction, which attracted a total demand of P46.5 billion.

But auction results showed the robust appetite for the offering did not stop rates from going up. The re-issued T-bonds, which have a remaining life of six years and four months, fetched an average yield of 6.237 percent, higher than 6.20 percent quoted for the same tenor in the secondary market as of March 25.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said creditors demanded higher rates due to “reduced dovish signals seen recently from some local monetary authorities.”

Not waiting for Fed move

Last week, BSP Governor Eli Remolona Jr. said there’s a chance that inflation quickened to 3.9 percent in March, from 3.4 percent in February, mainly due to distortions caused by base effects. If realized,  Remolona’s projection would put price growth closer to the upper-end of the BSP’s 2 to 4 percent target range.

READ: 3.9% March inflation seen

According to Remolona, the urge to stay hawkish is also preventing the BSP from further slashing banks’ reserve requirement ratio, which would inject more liquidity into the local financial system and may potentially stoke inflation.

But the BSP chief said the central bank would not wait for the US Federal Reserve to cut rates before making its own easing moves.

“Some expectations of further monetary easing tempered recently,” Ricafort said.

READ: Marcos admin to borrow P585B from local creditors in Q2

Documents from the budget department showed the Marcos administration is planning to borrow P1.85 trillion onshore in 2024. Of that amount, P672.1 billion will be raised via short-dated Treasury bills while P1.8 trillion will come from weekly auctions of T-bonds.

Those borrowings are needed to help plug a projected budget hole of P1.39 trillion this year, which is equivalent to 5.1 percent of gross domestic product.

Based on latest government forecasts, it is only in 2027 that the budget deficit, as a share of the economy, is expected to return to pre-pandemic level at 3.2 percent.