Bond yields rise as inflation picks up
MANILA, Philippines — The Office of the Treasury opens its May auction amid yield pressures as investors fear inflation could climb to as high as 5%.
A bond trader told The STAR that treasury bill (treasury bill) rates this week could move sideways or rise by five basis points across the board due to inflationary stress.
Similarly, yields on three-year Treasury bills (T-bonds) could rise by as much as 25 basis points to 4.5% as investors tend to avoid medium- and long-term securities during market downturns. inflationary spurts.
“For Treasuries, we expect rates to either move sideways or rise five basis points across all issues. On the other hand, we expect Treasury bond yields to be between 4.4 and 4.5%,” the trader said.
The trader added that investors will be watching April’s inflation performance as the debt market sees inflation running parallel to the global trend as energy costs continue their upward trend due to disruption caused by Russia’s invasion of Ukraine.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno said earlier that inflation in April likely accelerated to a range of 4.2-5% due to higher electricity prices, the fuel, as well as meat and fish.
After inflation fell to 3% in January and February, it hit a six-month high of 4% in March as the cost of basic goods like food, fuel and transport rose.
“Looking forward, BSP will continue to monitor emerging market price developments and possible second-round effects to help achieve its core mandate of price stability which is conducive to balanced and sustainable growth of the economy,” Diokno said.
On the outer front, the trader said investors will be watching the results of the Federal Open Market Committee on May 3-4. The US Federal Reserve is expected to announce a rate hike of up to 50 basis points, in line with its stance on tightening monetary policy.
By raising interest rates, the Fed wants to drive up borrowing costs to reduce demand for inflation drivers like properties and vehicles. US inflation swelled to 8.5% in March, the highest in four decades, due to soaring prices for petroleum products.
On Monday, the Treasury will sell 15 billion pesos in treasury bonds divided into 5 billion pesos each for terms of 91 days, 182 days and 364 days.
With the fall of Eid’l Fitr on Tuesday, the Treasury postponed to Wednesday its auction of 35 billion pesos of reissued three-year Treasury bonds, with a remaining duration of two years and 11 months.