Philippine bond yields paused near four-month lows on Monday as investors waited for an 8.5 billion pesos ($186 million) treasury bill auction later in the day. With liquidity ample in domestic money markets and growing expectations that the central bank will hold off from hiking policy rates until after May's national elections, traders expect good demand at the auctions with cutoff yields seen in line with secondary market rates.
The yield curve has steepened slightly since the end of February and the shorter-dated swaps have witnessed a fair bit of receiving on expectations that Manila will lag other Asian countries such as Malaysia and India in hiking rates. The central bank said earlier this month it will pursue its exit strategy slowly as the global economic recovery remained fragile, though it may continue removing its liquidity enhancing measures put in place during the crisis.
Benchmark four-year bond yields were steady around 5.87 percent, a level it last tested in mid-December. They have dropped by 20 basis points since the start of the month. Five-year swap rates have dropped by 22 basis points in the same period. Even with the central bank stepping up its liquidity withdrawal measures, swap rates have moved lower in recent weeks due to record amounts of liquidity in the banking system.
Moreover, the government's plan to issue more offshore bonds has reduced concerns of more supplies in the domestic market in an election year. Manila plans to sell up to $1 billion worth of dollar and euro-denominated retail bonds to Filipinos abroad, national treasurer Roberto Tan said on Thursday.
It has already raised an estimated 120 billion pesos, 40 percent of the full-year target, via offshore sales. It is aiming for a budget deficit of 110.94 billion pesos in the first three months to keep the full-year gap at 293 billion pesos, or 3.5 percent of GDP.
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