T-bond yields spike on inflation worries

MANILA, Philippines — Yields for medium-term government bonds have gone above market pricing two days after the elections, with investors wary that inflation will haunt even the next administration.

The Bureau of the Treasury yesterday borrowed just P25.1 billion of the offered P35 billion in reissued 10-year Treasury bonds (T-bonds), with a remaining life of four years and 11 months.

The T-bonds fetched a rate of 5.772 percent, exceeding by 18.8 basis points the average quotation of 5.584 percent for the five-year tenor. Further, demand for the securities reached P55.297 billion, oversubscribing the auction by 1.58 times.

National Treasurer Rosalia de Leon said investors asked for additional protection to cover risks and priced in the market consensus inflation would keep its upward pressure for the remainder of the year.

“(We) saw rates climb higher with analysts’ expectation of surging inflation and breaching (the) target band,” De Leon said in a text message to reporters.

As the costs of food, transport and utilities jumped, inflation went up by 4.9 percent in April, the highest in 40 months, triggered by spiking fuel prices due to Russia’s attacks against Ukraine.

In turn, inflation averaged 3.7 percent in the four months to April, nearing to hit the upper end of the target range of two to four percent.

De Leon said investors also took into account the upward movement of US Treasury yields, as the US Fed tries to tame inflationary tensions by tightening monetary cycle. The Fed has jacked up its policy rates by 75 bps as of May and plans to raise 100 bps more for the rest of 2022.

By increasing benchmark rates, the Fed wants to push borrowing costs up to slash demand for inflationary drivers like properties and vehicles. Here, the Bangko Sentral ng Pilipinas intends to raise interest rates in June to mirror similar actions enforced by the Fed.

“It (yield) also tracks the US Treasury upward movement, as the Fed maintains hawkish stance to battle with high inflation,” De Leon said.

For May, the Treasury eyes to borrow P200 billion from the debt market by auctioning P60 billion in Treasury bills and P140 billion in T-bonds.