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PHILIPPINE Treasury bond yields are expected to remain
“relatively steady” but with “an upward bias” during the
third quarter of 2008 as double-digit inflation impacts
on the market, according to First Metro Investments
Corp. and the University of Asia and the Pacific (UA&P)
in their research report on the capital markets.
“We
expect T-bond yields to remain relatively steady but
with an upward bias up to the third quarter….During the
recent auctions, in spite of the fact that the
government is eyeing P75 billion this year to pump-prime
the economy, it has signaled to the market that it will
control its interest cost by rejecting auctions where
bids are relatively higher than where government
believes they should be,” economists said in the June
edition of The Market Call, where the First Metro and UA&P
research results appeared.
A
summary of the most recent auction conducted by the
Bureau of Treasury shows that on May 20, the government
awarded P7 billion worth of Treasury bonds at an average
yield of 8.239 percent, 187 basis points higher that its
previous auction when it fetched an average of 6.500
percent.
On May
26, the government partially awarded the 364-day
Treasury bill, selling only P1.62 billion out of the
P6-billion offer at an average yield of 6.846 percent, 8
points lower than the May 12 auction. On June 3, the
treasury awarded P7 billion worth of 7-year T-bonds at
an average of 8.495 percent, or 87 points higher than
the previous rate of 6.625 percent. This was the time
when the market was waiting for the monthly inflation
report.
Days
after the 9.6-percent inflation rate for May was
announced, the government, on June 10, awarded in full
the 364-day T-bills worth P6 billion. The average yield
was 6.79 percent, or 5.6 basis points lower than the May
26 auction.
The
series of full awarding of government bonds was
interrupted when the treasury rejected all bids for the
reissued five-year T-bonds worth P7 billion on June 17,
citing weak demand and unreasonable rates asked by
banks.
“Although it [government] gave in to the higher rates
during the previous two auctions, the government insists
that it would not borrow at a high rate, and if it has
to postpone borrowing, it is still capable of doing so
given its recent budget surplus,” the study said.
In
separate interviews, bank economists said the bond
market has shifted its interest to shorter-term debt
papers pending the announcement of the inflation rate
for June.
In the
last two auctions, the treasury, on June 23, awarded the
364-day T-bills worth P6 billion in full at the rate of
6.703 percent. The previous auction rate was 6.790
percent.
On
Tuesday, the government rejected all bids for the
reissued five-year Treasury bonds worth P7 billion after
banks demanded high rates because of inflationary
pressures.
The debt
paper would have fetched an average of 8.818 percent
against the secondary market rate of 8.971 percent had
the government awarded it in full. Total tenders reached
P10.207 billion compared with the P7 billion worth of
bonds that were offered.
In a
phone interview, Security Bank treasurer Rafael S.
Algara said interest rates for government securities are
expected to rise in the third quarter because of
inflationary risks.
“Interest rates are expected to go up because risk is
still on the upside. The BSP is also [likely] to raise
rates,” he said.
The
joint study expects the rate for the benchmark 91-day
T-bill to climb to 5.30 percent this month. |
