Reuters

Philippine debt yields are expected to be stuck in range this week as worries about domestic inflation cancel out the positive impact of the US Federal Reserve's series of moves to help credit markets, dealers said.

In addition to inflation worries, uncertainty over the Bureau of Treasury's plan to enter into negotiated debt sales will keep most banks cautious about taking aggressive positions in the market, they said.

The central bank is unlikely to cut overnight rates at its next meeting in April following the Fed's sharp three-quarters of a percentage point cut last week because of an impending spike in inflation, traders said.

There is currently an interest rate differential of 275 basis points between US and Philippine policy rates.

"The expectation for a cut because of the widening interest rate differential will be tempered by inflation concerns," said a dealer from a big local bank.

Annual inflation hit a 16-month high of 5.4 percent in February and pressures from high oil and food prices are expected to peak in the second quarter.

The Treasury has yet to announce that it has entered into a negotiated sale of government securities but traders said this option has increased uncertainty in the market.

The Treasury has said it has dropped a previous practice of giving the market one week's notice before any sale of Treasury paper via negotiation with a particular bank.

The Treasury said the move would give it leeway in raising money after it failed to sell short-term T-bills and some T-bonds last month when the market demanded a steep premium for the debt.

The market will watch out for the results of an auction of 10-year T-bonds on Tuesday to gauge whether the Treasury would still reject bids seeking high yields.

Traders said the 10-year paper, trading at around 7 percent in the secondary market, might fetch yields ranging from 6.875 to 7.125 percent against the 5.875 rate at the last successful sale of the paper in January.

The central bank's move last week to close three longer-term tenors of its special deposit account (SDA) window created more liquidity that could push down yields of Treasury papers.

Average best bids and done deals in the secondary market*:

                                
BEST BIDS         
DONE DEALS 

                          
March 24   March 17   
March 24  March 17 

                                           
(in percent) 

 three-month   <PH3MT=RR>  
4.6346    4.6569     
4.5000   4.6000 

 six-month     <PH6MT=RR>  
5.2269    5.5269    
5.0000   5.4750 

 one-year       <PH1YT=RR>  
5.9865    5.8365     
5.8750   5.7250 

 two-year       <PH2YT=RR>  
6.3885    6.3615     
5.9140   6.2500 

 three-year     <PH3YT=RR>  
6.4312    6.4327     
6.2263   6.1275 

 four-year      <PH4YT=RR>  
6.5035    6.5365     
6.3270   6.2438 

 five-year       <PH5YT=RR>  
6.7181    6.7346     
6.5000   6.2975 

 seven-year   <PH7YT=RR>  
7.0269    6.9442     
6.9500   6.6500 

 10-year        <PH10YT=RR>  
7.1981    7.1500     
7.0750   7.0000 

 20-year        <PH20YT=RR>  
8.5865    8.5462     
8.5000   8.4506 

 25-year        <PH25YT=RR>  
8.6885    8.7019     
8.6000   8.6000 

*Values based on fixing by the Philippine Dealing and Exchange Corp (PDEX) as of 11:17 a.m.