Government debt yields climb on expectations of faster inflation

Government securities (GS) yields rose broadly last week on expectations of faster inflation and potential rate hikes by various central banks.

GS yields, which move opposite to prices, rose an average of 5.54 basis points (bps) week over week, according to PHP Bloomberg Valuation Service benchmark rates as of April 1 published on the GS website. Philippine Dealing System.

At the short end of the curve, yields on 91-, 182- and 364-day Treasury bills (T-bills) rose 2.81 basis points (to 1.3493%), 0.81 basis points on Friday. base (1.5347%) and 0.56bp (1.7434%), respectively, since their arrival on March 25.

The belly of the curve also climbed as rates on two-, three-, four-, five- and seven-year Treasury bills (Treasury bonds) rose 3.6 basis points (to 3.3857%), 7 .35 basis points (4.0737%), 10.2 basis points (4.7063%), 6.1 basis points (5.1729%) and 2.79 basis points (5.6271%) , respectively.

The long end of the curve also rose, with 10, 20 and 25-year Treasury bond yields gaining 23.94 basis points (5.9587%), 1.13 basis points (5.5605%) and 1.7 basis points (5.5512%).

“Bond yields continued to reflect expectations of faster inflation and possible rate hikes by the BSP (Bangko Sentral ng Pilipinas),” Nicholas Antonio T. Mapa, chief economist at ING Bank NV, said on Friday. Manila, in an email.

“To some extent, sentiment was driven by conflict-related developments in Eastern Europe as well as the borrowing plan for the second quarter,” Mapa added.

“The GS market maintained its defensive posture last week as dealers and investors remained hesitant to build large positions in anticipation of further interest rate hikes to come, led by the US Federal Reserve,” said one. bond trader in a Viber message.

“Additionally, the rise in local yields was tempered by the relative decline in global oil prices last week,” the bond trader added.

The BSP chief said the central bank plans to end its accommodative policy related to the pandemic by the second half of the year. BSP Governor Benjamin E. Diokno signaled last week that the policy rate could reach 2.75% by next year.

The central bank kept its key rate unchanged for the 11and back-to-back meeting last month despite warning that its inflation target could be exceeded this year due to soaring global oil prices sparked by Russia’s invasion of Ukraine.

On Thursday, the central bank said March inflation could exceed its target due to rising local oil prices and a weaker peso.

The BSP estimated that inflation for March could be between 3.3% and 4.1%, with a midpoint at 3.7%.

If realized, it would be faster than the 3% in February but slower than the 4.1% in March 2021. The midpoint also matched the pace of November 2021 and would be the fastest recovery since printing. 4% in October last year.

The Philippine Statistics Authority will release March inflation data on April 5, Tuesday.

Global oil prices fell on Friday ahead of a meeting of member nations of the International Energy Agency to discuss a release of emergency oil reserves alongside the United States’ planned release of a maximum of 1 million barrels of oil per day for six months, Reuters reported.

Brent crude futures fell 6 cents or 0.1% to $104.65 a barrel at 10:55 GMT on April 1. U.S. West Texas Intermediate crude futures were down 37 cents or 0.4% at $99.91.

Central banks around the world have tightened monetary policies to moderate inflation, even in the face of risks to economic growth.

The Fed raised its key rates for the first time since 2018 by 25 basis points last month to combat soaring inflation that has hit a 40-year high. He signaled more aggressive hikes in future meetings.

Meanwhile, the Treasury Office on Wednesday announced plans to borrow 200 billion pesos from the domestic debt market in April, down from the 250 billion pesos scheduled last month. In detail, the government aims to borrow 60 billion pesos in its weekly treasury bill auctions and 140 billion pesos through treasury bonds.

For this week, ING’s Mapa said investors are likely to be guided by the upcoming March inflation report as well as international developments.

“As for the particular tenors, next week will feature both a ticket and bond auction and we could see some action on the underside of the curve,” Mr Mapa said.

Yields will continue to trade sideways with an upward bias this week, the bond trader said.

“The local bond market will have a full plate this week as market participants prepare for the March CPI (consumer price index) release on Tuesday and the FXTN auction issue (Treasury rating at three-year fixed rate (indicative range 4.00% to 4.25%),” the bond trader said.

The Treasury will offer 35 billion pesos of new three-year bonds on Tuesday.

The government is borrowing from local and foreign sources to help finance its budget deficit which is expected to reach 7.7% of the country’s economic output this year. — Lourdes O. Pilar with Reuters

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