Yields on 10-year Treasury bonds may drop as March inflation eases

THE RATE of the 10-year Treasury bonds (T-bond) on offer today will likely decline as market participants price in the latest domestic inflation print.

The Bureau of the Treasury (BTr) is offering on Wednesday P15-billion worth of reissued 10-year T-bonds with a remaining life of nine years and nine months.

A trader interviewed on Monday expects that the 10-year bonds would fetch an average rate from 5.85-6%, which if realized will be lower than the rate fetched during the previous auction.

On March 12, the BTr made a full award of the reissued 10-year bonds. Carrying a coupon rate of 6.875%, the IOUs fetched an average rate of 6.196%, 63.3 basis points lower than the 6.829% quoted when the instruments were offered in January.

At the secondary market on Monday, the 10-year debt notes were quoted at 5.87%, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

The trader said investors will factor into their bids the “recent release of inflation” and “possibility of RR (reserve requirement) [ratio] cuts” by the Bangko Sentral ng Pilipinas (BSP).

Inflation came in at 3.3% in March, slower than the 3.8% print in February and tallying a sharper slowdown than what market players expected. This is the slowest pace since January 2018 and marks the fifth straight month of decline since November.

The March result prompted market players to take the slower inflation print as a green light for cuts in key interest rates.

However, the BSP cautioned against swift plans to cut borrowing costs, saying they need to be watchful about the El Niño episode as well as rising global oil prices.

Meanwhile, another bond trader said the average rate of the debt papers on offer today will likely land between 5.8% and 6% as “traders unwind their position following statements that RRR or policy [will be] cut only when CPI (consumer price index) is near 3% (midpoint) of 3% to 4%.”

The government plans to borrow P315 billion from the domestic market this quarter, broken down into P195 billion in T-bills and P120 billion in Treasury bonds.

It is looking to borrow P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of the country’s gross domestic product. — K.A.N. Vidal