Borrowing rates

Borrowing rate up in May; BSP and the US Fed turn hawkish

MANILA, Philippines — The Office of the Treasury will face increased pressure from the debt market in May and may end up caving in to higher rates just to fulfill its borrowing schedule.

The Treasury announced yesterday that it intends to borrow a total of 200 billion pesos from local investors in May, which is similar to the volume of financing it had planned for April.

A bond trader told the STAR that the Treasury expects borrowing costs to rise in May due to tightening measures taken not only by the US Fed, but also by the Bangko Sentral ng Pilipinas (BSP). .

The U.S. Federal Open Market Committee will hold its policy meeting on May 3-4 in what investors expect will result in a 50 basis point hike in interest rates. The Fed triggered a 25 basis point hike at its March meeting and is expected to raise rates another 150 basis points for the rest of the year.

By raising interest rates, the Fed wants to tighten monetary circulation in the United States in order to curb inflation. US inflation soared to 8.5% in March, the fastest in four decades, as energy costs soared due to Russia’s invasion of Ukraine.

On the home front, BSP Governor Benjamin Diokno said the Philippines could start raising policy rates as early as June, joining the international community in normalizing monetary programs after easing them at the height of the pandemic.

However, Diokno said the Monetary Board would likely keep benchmark rates at record highs at its May meeting as part of a pledge to maintain a dovish stance in the first half of the year to support the economic recovery.

At its March meeting, the BSP kept the overnight repo facility interest rate at an all-time low of two percent, but sounded the alarm that policy action could be forthcoming. necessary given that inflation is expected to reach 4.3 percent for the year. .

“The Fed hikes will keep its pressure on the movement of yields in the debt market. Investors, as usual, will remain cautious with their buying and will demand a rate hike from the Treasury,” the trader said.

“Right now, investors are watching the policy decisions that will be made by the Fed, including the BSP. Any indication that the Fed will go beyond a 50 basis point hike in May could spell trouble for the Treasury. , as it will be difficult to lift the 200 billion peso program for the month with rising funding costs,” the trader said.

For May, the Treasury will auction 60 billion pesos in treasury bills, with maturities of 91, 182 and 364 days, divided into 15 billion pesos each week.

Similarly, the Treasury will sell 140 billion pesos in treasury bills, with maturities of three, five, seven and 10 years, divided into 35 billion pesos every week.