Philippines Bill Auction Fails on 3-Month High Yields

05/31/10 -  The Philippines failed to sell 91- and 364-day bills at a weekly auction as investors demanded the highest interest rates in three months on speculation the central bank is moving closer to raising borrowing costs.

The government rejected all offers for the 91-day securities for the first time since September and spurned investors in 364-day bills for a second time this month. The Treasury sold 1.6 billion pesos ($35 million) of 182-day notes at a yield of 4.111 percent, compared with 4.113 percent on May 17. Total bids were almost twice the 8 billion pesos for the three maturities on offer.

“There’s supposed to be no change in monetary policy so we didn’t expect auction rates to rise,” Finance Undersecretary Gil Beltran told reporters today, citing two central bankers who are also part of the auction committee. “They were surprised at the increase in rates,” Beltran said.

The market “is not very convinced that the central bank will not do anything” this week, said Speedy Delfino, a fixed- income trader at Bank of Commerce in Manila. “Growth is robust and inflation is becoming a concern.”

Inflation Forecasts

Bangko Sentral ng Pilipinas will probably keep its overnight borrowing rate at 4 percent, according to nine of 13 economists surveyed by Bloomberg. Inflation accelerated to 4.9 percent from a year earlier, the quickest pace in 14 months, a separate survey showed.

The 91-day treasury bills on offer today would have fetched an average yield of 3.93 percent, the most since February, while the 364-day rate would have gone up to 4.615 percent, also a three-month high.

The yield on the Philippines’ 9.125 percent bond due September 2016 rose three basis points to 7.11 percent, according to Tradition Financial Services in Manila. (Bloomberg)