The cost of three-year funds moved up substantially on Tuesday, the rate having risen 38.1 basis points to 3.873 percent, the Bureau of the Treasury (BTr) said.
The auction committee attributed the increase to investors recognizing that premium has to be had given that domestic inflation already trended higher and that interest rates, local and foreign, are bound for higher grounds over the near term, as well.
As a consequence, the BTr sold all P15 billion in reissued Treasury bonds (T-bond) on Tuesday on the back of healthy demand from market participants.
National Treasurer Rosalia V. de Leon said they have made calculations and recognized the uncertainties hanging over the market not just at the moment but over the near term.
She cited inflation whose continued rise in recent months, and when viewed against the latest comments from the US Fed, warranted the rise in the cost of three-year funds.
“Even [US Fed Chairman Janet] Yellen herself has spoken about the accommodation [being] scaled back,” de Leon said. This pertains to the anticipated normalization of interest rates in the world’s largest and most liquid market that analysts and regulators alike acknowledge as happening sooner rather than later this year.
The reference to external-markets events run parallel to or in addition to the more parochial issue of domestic inflation similarly trending higher.
“So these are really the market’s reaction in terms of rate moves,” de Leon said.
According to her, the market is factoring even now the eventuality that interest rates will move up as the monetary authorities, the Bangko Sentral ng Pilipinas (BSP), allow the policy rates to move in tandem with changes in the monetary settings elsewhere.
“Definitely, the markets are not just 96 percent expecting a rate hike but definitely that is on the table at the March discussions,” she said of the market viewpoint on how the policy-making Monetary Board of the BSP will act when it sets monetary policy later this month.
De Leon said the sale of three-year bonds on Tuesday was marked by offers more than twice that planned by the auction committee, as oversubscription totaled P35.784 billion.
The BTr planned to sell only P15 billion.