Philippine Market range-bound, awaits 10-year auction
Published March 12th, 2007
Philippine debt yields have been locked in a narrow trading range of five to 10 basis points over the past week as players waited for more guidance after conflicting signals on interest rates from the central bank.
A 10-year Treasury bond auction on Tuesday may provide more clues on the direction interest rates will take, but in general secondary market yields were likely to continue range-bound ahead of Easter in early April, traders said.
”The market is so liquid now that this tight range will persist,” said a trader from a local bank.
On Thursday, as expected, the central bank left its headline overnight rates steady and maintained a tiering system on banks’ overnight deposits, where it pays less on deposits above 5 billion pesos (3 million).
A central bank statement that benign inflation supported monetary easing pushed yields lower, but then on Friday central bank Governor Amando Tetangco told a business meeting that interest rates were too low, leading to confusion.
”From the time he made that statement up to now, the market has hardly moved. In fact, bids and offers have become rather wide as people wait for more leads,” said a trader from a local bank.
The 91-day T-bill rate on which banks base their lending rates edged up at last Monday’s auction from record lows.
The Treasury will sell 7 billion pesos of 10-year bonds
on Tuesday and some traders expect bids to be rejected at least partly.
Traders said any rejection at the T-bond auction would signal that the government was still awash with cash and did not need to accept high yields, preferring to hold interest rates down.
The 10-year paper traded at around 6.8 to 6.9 percent in the secondary market on Friday, dealers said. There have been no deals so far today.
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