MANILA, March 2 Philippine debt yields are likely to be little changed this week with a slight upward bias ahead of a central bank policy meeting on Thursday and the launch of San Miguel Brewery's SMB.PS local bond, traders said.
While the central bank is expected to cut rates by 50 basis points on March 5, investors will remain cautious before the policy decision.
"The market is being very defensive ... They do not want to preempt the policy move," said a trader from a foreign bank, although he said the central bank remained clear about its bias for easing policy as inflation expectations moderate.
But yields could push higher as the Philippines' largest beer brewer debuts in the local debt market this week with possibly a record bond offering, prompting banks to sell government debt to make room for higher-yielding corporate bonds.
"Some would favour the San Miguel Brewery bond because of the yield pick up," another trader from a local bank said.
San Miguel Brewery, the flagship firm of Philippine conglomerate San Miguel Corp SMCB.PS, has given an indicative yield of 250 to 325 basis points over secondary market rates for comparable government bonds for its domestic bond offer, market sources said over the weekend.
The company plans to raise at least 20 billion pesos from the sale of bonds with maturities of 3, 5 and 10 years. But it has the option to increase the offer to 38.8 billion pesos, which would make it the biggest local debt issue by a Philippine firm.
Proceeds from the bond sale would be used to fund its purchase of local beer brands and related assets from its parent.
San Miguel Brewery is expected to announce its official price guidance this week after Thursday's central bank policy review.
Traders said there was little concern about inflation despite central bank statements that annual inflation in February may come in at the high end of a forecast range of 6.6-7.5 percent from a rate of 7.1 percent in January.
The government will sell 10 billion pesos worth of 10-year zero coupon bonds on Tuesday, the first such sale since 2001. Traders said the paper could fetch an average yield of 8.25 percent.
The best bid for ten-year bonds PH10YT=RR in the secondary market on Monday was 8.1231 percent.
BEST BIDS DONE DEALS (PDST-R1) March 2 Feb 23 March 2 Feb 23 (in percent) three-month PH3MT=RR 4.7192 4.6212 4.6000 4.5000 six-month PH6MT=RR 4.8635 4.9192 4.7500 4.8000 one-year PH1YT=RR 5.0585 5.1642 4.9750 5.0750 two-year PH2YT=RR 5.4115 5.6115 5.2750 5.5000 three-year PH3YT=RR 5.8469 5.9842 5.7750 5.8389 four-year PH4YT=RR 6.1635 6.3385 6.0750 6.2500 five-year PH5YT=RR 6.4788 6.5673 6.3024 6.3973 seven-year PH7YT=RR 7.3435 7.4615 7.1750 7.2298 ten-year PH10YT=RR 8.1231 8.1173 8.0000 8.0000 20-year PH20YT=RR 10.6654 10.6865 10.5000 10.5000 25-year PH25YT=RR 11.1712 11.2000 11.0000 11.0000
*Values based on fixing by the Philippine Dealing and Exchange Corp (PDEX) as of 11:17 p.m. [0317 GMT]
($1 = 48.9 Philippine pesos) (Reporting by Karen Lema; Editing by Rosemarie Francisco & Kim Coghill)