Bond yields seen to rise as US rate hike looms

MANILA, Philippines — Investors are expected to demand higher yields for short-dated and long-term bonds  anew this week with the expected interest rate hike by the US Federal Reserve to tame inflation, traders said.

A bond trader said the Bureau of the Treasury should expect investors to enter the auctions wary that Fed rates would be raised to tame inflationary pressures.

The trader said yields for Treasury bills (T-bills) with 91-day, 182-day and 364-day tenors could go up by at least 10 basis points across the board, while the average for the reissued five-year Treasury bonds (T-bonds) might range between 4.3 and 4.5 percent.

According to the trader, investors will monitor the results of the Federal Open Market Committee (FOMC) meeting on March 15 and 16, where authorities are expected to discuss whether it will trigger the first round of rate hikes in March to tame inflation.

“Investors will head into the auctions for T-bills and T-bonds with caution given the likelihood that the Fed will determine rate hikes this week. They will price in the risks for sure,” the trader said.

“If investors will insist on bids that breach market pricing, the Treasury could end up rejecting all of them similar to the past weeks,” the trader added.

US inflation surged to a new 40-year high of 7.9 percent in February even before crude prices went up due to the ongoing tensions between Russia and Ukraine.

The Fed finds itself in a tight spot on whether to increase interest rates to push borrowing costs up, reduce demand for big-ticket items and, in turn, hold off inflationary stress.

The Treasury has yet to raise any amount from the financing program of P250 billion for March. Four consecutive auctions for T-bills and

T-bonds ended in failed biddings, as the agency found the yields sought by investors way beyond what it can afford.

National Treasurer Rosalia de Leon said the government has enough resources to sustain its operations thanks to the proceeds raised from the 27th sale of retail Treasury bonds (RTBs).

The Treasury generated P457.8 billion from the latest tranche of RTBs with a coupon of 4.875 percent.

“By funding our activities in the domestic space, we are shielding our debt portfolio from volatility in the global financial markets, all the while taking advantage of the commitment of the Bangko Sentral ng Pilipinas for supporting the country’s economic recovery,” de Leon said.

However, de Leon admitted that the debt market appears to be frightened by risks posed by the worsening conflict between Russia and Ukraine coupled with the impending Fed hikes.