THE average yield of long-term 7-year Treasury bonds (T-bonds) in Tuesday’s auction climbed to 6.081 percent despite the easing inflation in April.
The Bureau of the Treasury (BTr) made a full award on P30-billion worth of reissued T-bonds with a remaining term of seven years and four months.
The auction committee allowed the average annual yield of the T-bonds to increase by 9.5 basis points from the 5.986 percent yield in the previous auction for the same tenor nearly a month ago, on April 8.
The yield was also 2.1 basis points higher than the benchmark Philippine Bloomberg Valuation (PHP BVAL) rate of 6.0609 percent for the 7-year tenor.
Rates of the 7-year debt papers ranged from a low of 6 percent to a high of 6.095 percent. The T-bonds carried a coupon rate of 6.750 percent.
Tenders for the government IOUs reached P71.710 billion, 2.4 times oversubscribed the planned offering. The auction committee had to reject bids amounting to P41.710 billion.
Despite inflation easing to 1.4 percent in April, the bond yield still went up due to other factors.
One of these factors is the , according Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said the bond yields increased on track with the US Treasury yields.
The comparable 7-year US Treasury bond yield is among 1-month highs recently at 4.13 percent “as the markets still await for any inflationary impact of Trump’s higher US import tariffs/reciprocal tariffs/trade wars especially with China that could determine the pace of future Fed rate cuts,” Ricafort said.
Fed Fund Futures priced in 75 basis points of Fed rate cuts for the rest of the year, or about three 25 basis points rate cuts, with the first reduction seen as early as July.
Meanwhile, local monetary authorities had signaled policy easing to support the economy amid rising global uncertainties affecting domestic economic activity.
The Bangko Sentral ng Pilipinas (BSP) is widely expected to further reduce the key policy rate this year, after it delivered a 25-basis point rate cut in April due to a more challenging external environment.
“We can’t tell you exactly how many more cuts, but definitely further cuts this year,” BSP Governor Eli M. Remolona Jr. said, noting that rate cuts will not happen at every monetary policy meeting.
Nonetheless, latest inflation number strengthens the case for another rate cut by the BSP, Emilio S. Neri Jr. of the Bank of The Philippine Islands (BPI) wrote in a briefing paper issued last Tuesday.
“The recent appreciation of the Peso also reinforces the argument for a rate cut,” Neri, chief economist of BPI, wrote. “However, the upcoming GDP [gross domestic product] data will be a key factor in shaping the BSP’s decision.”
He added that a “weaker-than-expected growth figure could solidify the case for a rate reduction.”
But Neri also expressed that “caution is still warranted when it comes to rate cuts.”
“Monetary policy in the US could shift eventually as a response to higher inflation brought by the tariffs. Aside from unfavorable base effects from oil and rice, risk of a rebound in prices of key commodities may also fuel inflation expectations from September to December,” he wrote.
He added that cutting the policy rate “too aggressively could make the Philippine economy vulnerable to a sudden reversal in the Fed’s stance, which might compel the BSP to implement substantial rate hikes in a worst-case scenario.”
The government plans to raise P160 billion from the market through T-bonds in May, and P100 billion from short-dated Treasury bills.
This year, the Marcos administration will borrow a total of P2.545 trillion, following an 80:20 mix in favor of domestic sources. Gross borrowings reached P745.142 billion in the first quarter.
Meanwhile, the national government’s outstanding debt reached a new high of P16.632 trillion as of end-February, 9.57 percent higher year-on-year from P15.178 trillion.
