Demand for T-bonds still high even as rates rise

Medium-term treasury bonds moved in line with secondary market rates at this week’s auction, indicating increasing stability in financial markets, even as interest rates go up.

National Treasurer Rosalia de Leon said banks seemed to be more sure of what financial market conditions would be like in the coming months, particularly when it came to monetary policies here and abroad.

“They’ve priced in policy rate settings in the coming meeting on July 31. Even inflation has been priced in,” De Leon said following Tuesday’s auction for seven-year T-bonds.

Rates for the reissued notes rose 31.6 basis points to 3.742 percent. Demand was nearly double the amount of those up for sale, with tenders reaching P48.98 billion.

Despite the demand, which gave the government the option to raise more money, the Treasury decided to award the intended amount of P25 billion.

Bids reached a high of 3.8 percent and a low of 3.6 percent.

The increase in rates was in line with the expected rise in borrowing costs for the government due to high inflation and tighter monetary policy settings.

De Leon cited a recent industry survey of banks, which showed most market players expect the Bangko Sentral ng Pilipinas (BSP) to raise its benchmark borrowing and lending rates when its policymaking body, the Monetary Board, convenes at the end of this month.

Last month, the BSP hiked yields for special deposit accounts by 25 basis points to encourage banks to keep more idle money in central bank vaults. In the previous Monetary Board meetings, banks were also ordered to raise their deposit reserves.

These moves were meant to rein in the rise in cash circulating in the economy.

By putting the brakes on liquidity growth, the BSP hopes to offset the effects of supply-side pressures on overall consumer prices.

In the first half of the year, inflation averaged 4.2 percent, above the midpoint of the BSP’s target range of 3 to 5 percent, and faster than last year’s average of 3 percent.