Market practitioners interviewed by Business Bulletin said there will be upward adjustment in the yields of Treasury Bills (T-bills), specifically the short-end of the curve to "align" the rates with the 25 basis points increase in the overnight rates of the Bangko Sentral ng Pilipinas (BSP).
"While most banks have already tacked-in the 25 basis points increase in the o-night (referring to the BSP overnight rate), the knee-jerk reaction is to bid up in the T-bills auction Monday," a foreign bank securities dealer said.
But, the source said the "upward adjustment will be minimal, roughly between 10 to 15 basis points," in the yield of the bellwether 91-day T-bill rate.
The source explained that, though, the market has already "discounted" the 25 basis points hike, but, this was inputted in the "belly of the yield curve" and not focused on the shorterm.
According to another source, news that the Palace is entertaining a wage increase to be announced during the Labor Day celebration in May or about three weeks from now, added up to the uncertainty in the market.
"This means additional expense for the government. Unless a wage hike has been incorporated in the annual budgetary allocation, there will be incremental expense that could harm the deficit reduction program of the government," the source said.
It was said Malacañang Palace is serious looking at a wage hike to give the people financial flexibility to absorb the spiraling cost of goods and services following the continued uptick in the prices of crude oil and other petroleum products.
"The BSP moved ahead by increasing the o-night to quash mounting inflationary pressures, which could be aggravated should there be a salary adjustment," another source explained.
After more than 18months of holding on, the regulators brought up the overnight borrowing rate to 7.0 percent from 6.75 percent and overnight lending to 9.25 percent from 9.0 percent to quell inflationary pressures.
As a natural reaction, banks are expected to offer higher bid-rates in the Tbills auction. At present, the benchmark 91-day yield remained below 7 percent, at 6.595 percent from the previous 6.539 percent, despite efforts by National Treasurer Omar Cruz to stave off the uptick by rejecting some bids.
"Unless, he has the money, Mr. Cruz may have to accept the bids," a domestic bank trader said.
In the last auction, the 182 day T-bills, likewise, moved up to 7.831 percent from 7.59 percent while the 364 day T-bill rates settled at 8.869 percent from 8.147 percent.
