Debt yields inch up in slow market, eyes on BSP


Posted at Jun 16 2008 01:25 PM | Updated as of Jun 16 2008 09:25 PM


Philippine debt yields are likely to nudge slightly higher in light trade this week as investors wait for signals the central bank will hike rates again, traders said on Monday.

Rates on the secondary debt market have been rising over the past two weeks as banks slowly price in a rate increase of at least 25 basis points at the central bank's next meeting on July 17 after a similar increase earlier this month.

"Banks are trading cautiously for fear of inflation, most of the players are sidelined right now," said a dealer from a local bank. "There is no aggressive buying because the market is waiting for the central bank's next move."

Investors are betting that annual inflation will hit double digit figures in June after reaching a nine-year high of 9.6 percent in May, forcing the central bank to act again after its first rate increase in nearly three years on June 5.

"The inflation picture hasn't changed and dealers do not see a reversal in trend very soon," said a trader from another local bank.

Finance Secretary Margarito Teves told Reuters on Monday that interest rates were likely to keep rising.

Central bank governor Amando Tetangco has said inflation may peak at 10-11 percent this year due to soaring costs for food and fuel and the monetary authority now expects average inflation this year to come in between 7 and 9 percent, slowing to 4-6 percent next year.

The central bank's inflation goal for this year was 3 to 5 percent and 2.5 to 4.5 percent in 2009. Inflation last year averaged 2.8 percent.

Trader said the Treasury had decided to scrap a plan to sell 20-year T-bonds on Tuesday because of higher rates.

The government will instead auction a re-issued five-year paper, with a remaining life of 2 years and 8 month.

Traders expect yields of the re-issued debt paper to rise around 15 basis points to 8.5 percent.

Dealers said the Treasury has been accepting yields 10 to 20 basis points higher than market rates in previous auctions.

The three-year paper was quoted at around 8.25 to 8.375 percent in the secondary market, traders said. Yields of the paper were around 8.15 to 8.1895 percent on Friday.