MANILA, Philippines — Bond yields are expected to shoot up in April, as investors grapple with inflation concerns and aggressive forecasts for US Fed rate hikes.
The Bureau of the Treasury has decided to offer securities with tenors ranging from three to 10 years in April to accommodate the changing appetite of the debt market.
“It is same as in March, (where the) program caters to various appetites of investors,” National Treasurer Rosalia de Leon said in a text message to The STAR, referring to the borrowing plan for April.
However, a bond trader said investors would insist on increased yields in the next auctions, as the debt market is starting to feel the impact of the US Fed’s action to tighten its monetary policy.
“We saw that borrowing rates jumped in March and we expect them to sustain their upward bias in April. For as long as the Fed pushes through with its rate hikes, investors will keep on jacking up their bids, of course,” the trader told The STAR.
As an alternative, De Leon said the government would turn to the samurai bond market, as earlier disclosed by Finance Secretary Carlos Dominguez III, to borrow the financing required to sustain state operations.
“(We are) still doing a market scan on the samurai on the right timing, as we always do,” she said.
The trader said borrowing costs are ballooning due to central bank measures to lift emergency stimulus and normalize benchmark rates.
The Fed, for one, is projected to raise its interest rates by a total of 150 basis points this year. It kicked off its hawkish actions with a 25-bps hike during its policy meeting in March in an effort to extinguish inflationary pressures.
US inflation swelled to 7.9 percent in February, the highest in 40 years, even prior to the series of price hikes in world crude due to Russia’s invasion of Ukraine. The Fed hopes that by raising interest rates, it can push borrowing costs up and cut demand for items driving inflation.
On the domestic front, the Bangko Sentral ng Pilipinas (BSP) last week retained interest rates at a record-low of two percent, but said that it may carry out a rate hike soon if necessary.
The BSP also revised its inflation outlook for the year to 4.3 percent, breaching the government target of two to four percent, on the assumption that crude prices will average $102.23 a barrel.
“Anywhere in the world, the movers of both monetary policies and bond yields are the Fed hikes and the Ukraine conflict,” the trader said.
For April, the Treasury plans to raise P60 billion from the auction of Treasury bills and generate P140 billion from the sale of Treasury bonds.
The government looks to borrow P2.47 trillion in 2022 to cover for a budget gap seen to hit 7.7 percent of the economy at P1.65 trillion. The bulk of the borrowings at P1.91 trillion will come from domestic sources, including proceeds from the weekly securities sale.