Philippines: Inflation worries push 7-year T-bond yield up

MANILA, Philippines — The yield for the P35-billion reissued Treasury bonds went up in yesterday’s auction as investors demanded higher rates due to risks posed by the anticipated inflationary spike for the rest of the year.

The Bureau of the Treasury awarded in full the programmed P35 billion in reissued seven-year T-bonds with a remaining term of six years and 10 months.

The debt papers attracted P76.128 billion in bids, oversubscribing the auction by over two-fold.

The rate of the seven-year T-bonds rose by 3.7 basis points to 3.826 percent. The securities quoted a coupon of 3.75 percent during its maiden offering.

National Treasurer Rosalia de Leon said yields went up as asked by investors who are growing wary that inflation or the general increase in commodity prices would rise for the rest of 2021.

A sustained hike in inflation forces investors to demand that their asset purchases be extended additional security.

“Rate went up due to lingering inflation concerns,” De Leon said in a text message to reporters.

Inflation in August surged to 4.9 percent, the top end of the Bangko Sentral ng Pilipinas’ forecast, as the cost of food and fuel jumped due to domestic and global factors.

As such, inflation for the year has risen to 4.4 percent, breaching the government’s target range of two to four percent.

ING Bank Manila senior economist Nicholas Mapa last week warned inflation in September may exceed five percent for the first time since the 5.1 percent recorded in December 2018. He said prices of fruits and vegetables, as well as fish, increased for the month due to the typhoons that damaged farm lands in the regions.

Further, New York-based GlobalSource Partners on Monday raised its inflation forecast for the Philippines to 4.4 percent, from 4.1 percent, this year. It said food prices would stay elevated for the rest of 2021 as suppliers of raw materials enforce cost hikes now that transport restrictions are being lifted.

Investors are also expected to adjust their activities in the bond market depending on the results of the US Federal Open Market Committee (FOMC) meeting concluding today.

At the end of the FOMC meeting, Fed officials are seen to announce a clear timeline as to when the government will slow its asset purchases, lifting its monetary support to the economy.