Philippine debt yields were steady in slow trade on Monday and the market was likely to remain sluggish this week despite concerns the government may step up its borrowing due to weak revenues, traders said.

Most investors were waiting for a treasury bond auction on Tuesday for cues on market direction, they said.

The government will sell P8.5 billion ($176 million) in 10-year bonds on Tuesday, and two traders expected the debt to fetch an average rate of 7.75 to 7.8 percent, below secondary market levels.

The best bid for the 10-year paper was 8.0958 in the secondary market.

"It's going be a quiet week because of a lack of important data to drive the market," a trader from a local bank said. "If ever, yields will probably stay in a 5 basis point range."

One trader from a local bank said the Bureau of Treasury might allow rates for the 10-year bond to go up because it may need to borrow more aggressively after the government missed its first quarter budget deficit goal.

The government had a P119.7-billion budget shortfall in the first three months of the year, above the P110-billion deficit target, as it accelerated spending to deal with the impact of the global downturn.

Traders said the market's medium-term view is for yields to trend lower as easing inflation raises the prospects of more interest rate cuts.

The government's decision to raise more funds overseas to cut the amount of debt it would raise locally would likely add to the downward push, traders said.

Secondary debt market transactions by late morning on Monday were about P4.59 billion, with most deals in five-year debt, against trades for the whole of Friday of P1.97 billion.

Local financial markets are closed on Friday, May 1, for Labour day holiday.