Slower inflation, strong peso slash T-bond yields


The government's reissued Treasury bonds (T-bonds) were met with strong investor demand on Tuesday, Sept. 10, as the offering's lower interest rates aligned with a more manageable inflation environment.

The Bureau of the Treasury successfully raised P30 billion as planned through the auction of the reissued seven-year bonds, attracting total bids of P69.08 billion, which was over twice the amount on offer. 

The bonds, which have a remaining life of four years and eight months, were awarded at an average rate of 6.058 percent, lower than the 6.107 percent average rate fetched in a similar auction on Aug. 7.

However, the average rate was marginally higher than the 6.05 percent secondary market yield for the same bond series before the auction.

Michael L. Ricafort, Rizal Commercial Banking Corp. chief economist, said the decline in interest rates was due to the country's slower inflation rate and a stronger peso. 

Inflation rate in August fell to a seven-month low of 3.3%, bringing it back within the Bangko Sentral ng Pilipinas (BSP) target range of two percent to four percent.

Ricafort said that this favorable economic indicator provides a compelling case for the BSP to further ease monetary policy. 

He said that the central bank's rate cuts could even align with future interest rate decreases by the U.S. Federal Reserve.

Supporting the outlook for lower interest rates is the peso's relative strength against the greenback and the ongoing decline in global crude oil prices, the economist said.

Both of these factors contribute to a more stable domestic economic environment and provide additional room for the BSP to implement accommodative monetary policies, he concluded. (Derco Rosal)