Treasury yields for seven-year securities breached the six percent mark yesterday on expectations that the Bangko Sentral ng Pilipinas (BSP) would raise interest rates tomorrow.
The Bureau of the Treasury awarded only P20.108 billion of the P35 billion in original seven-year Treasury bonds (T-bonds) on offer.
The medium-term debt papers quoted a coupon of 6.5 percent, above the BVAL Reference Rate of 6.189 percent for the seven-year tenor.
Also, the new T-bonds obtained an average of 6.428 percent from a spread of six to 6.6 percent. Demand for the debt paper amounted to P46.941 billion, oversubscribing the offer by 1.34 times.
National Treasurer Rosalia de Leon said the debt market speculates that the BSP will raise its key policy rates in its Thursday meeting. Likewise, investors priced in the impact of similar actions to be taken by the US Fed following its 50-basis-point increase in its May meeting.
'We made a partial award at a coupon rate of 6.5 percent as the market takes it cue from the possibility that the Monetary Board will raise policy rates on Thursday,' De Leon said.
'At the same time, the US Fed is similarly expected to follow up with another rate lift in its next meeting in June,' she said.
BSP Governor Benjamin Diokno earlier committed to raise interest rates only in June to support government measures in revitalizing the economy.
However, experts said the BSP may begin its policy normalization as early as this month given the first quarter economic expansion of 8.3 percent. They said the BSP has the space to pursue its first round of rate hikes with the economy showing solid signs of recovery.
ING Bank Manila senior economist Nicholas Mapa said the continued increase in consumer prices may prompt the BSP to tighten its monetary policy as early as this week.
After sinking to three percent in January and February, inflation rose by four percent in March and 4.9 percent in April, the highest in 40 years, due to price surges in food, transport and utilities.
The BSP expects inflation to average at 4.3 percent this year, surpassing the target range of two to four percent.
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