Yield Tracker

YIELDS on government securities (GS) inched up last week following strong reception for the offer of retail bonds as well as upbeat US economic data.

GS yields increased by a week-on-week average of 5.11 basis points (bps), Philippine Dealing & Exchange Corp. data as of Dec. 1 showed.

“The rise in GS yields may be attributed to the jitters ahead of the expected US Fed[eral Reserve] rate hike this month and the market’s pricing in of the Bureau of the Treasury’s (BTr) five-year retail Treasury bond (RTB) offering,” Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines (UnionBank), said.

The Treasury awarded P130 billion worth of five-year RTBs last Nov. 20 with rate of 4.625%. These bonds were offered at a minimum investment of P5,000 and were sold until Nov. 28, earlier than the initial cut-off date of Nov. 29.

Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank), said last week’s increase was due to upbeat US data, namely: third-quarter gross domestic product, personal consumption expenditures price index, personal spending and personal income.

The US economy grew by 3.3% in the third quarter this year, faster than the previous estimate of 3.0%, according to the Commerce Department.

In a separate report, the Commerce Department said consumer spending in the US went up by 0.3% in October, slowing from 0.9% increase in September.

Meanwhile, the PCE price index excluding food and energy rose by 0.2% in October, while personal income increased by 0.4%.

“These reports kept open the possibility of another US rate hike in December 2017, supporting the hawkish tone of Fed Chair Janet Yellen recently. The increase in yields was capped by political noise in the US on tax reform and the alleged involvement of Russia in the US election,” Landbank’s Mr. Dumalagan said.

“Policy uncertainties due to the forthcoming change in leadership at the US Federal Reserve also tempered the increase in domestic interest rates,” he added.

At the secondary market last Friday, yields on the short end of the curve increased, with the 91-, 182-, and 364-day Treasury bills gaining 1.79 bps, 21.20 bps, and 1.71 bps, respectively, fetching 3.0368%, 3.1768%, and 3.4307%.

The belly, however, ended mixed. Two- and three-year Treasury bonds (T-bonds) fell by 36.92 bps and 29.85 bps, respectively, to yield 3.969% and 4.2604%, while four-, five-, and seven-year T-bonds saw their rates go up by 1.96 bps, 6.00 bps, and 11.47 bps to 4.8446%, 5.1425%, and 5.4379%.

Meanwhile, the long end of the curve rose, with the 10- and 20-year papers gaining 16.35 bps and 57.43 bps, respectively, fetching 5.7039% and 5.8554%.

Analysts pointed to the RTB settlement today and the release of the November inflation data tomorrow as leads for this week’s trading.

UnionBank’s Mr. Asuncion said he expects “the market to be more active as the five-year RTBs are settled on Monday, Dec. 4th, and as November inflation data are released on Tuesday, Dec. 5th.”

The Bangko Sentral ng Pilipinas (BSP) gave an inflation estimate range of 2.9%-3.6% for November on the back of higher fuel costs and electricity rates.

“GS yields might show some downward correction [this] week, amid likely tamer economic reports from the US and the Philippines,” Landbank’s Mr. Dumalagan said.

“US reports on non-manufacturing and employment are expected to soften, even as they remain close to prior readings and within acceptable levels. Philippine inflation is also expected to decline, increasing the chances of steady policy settings from the BSP for the rest of the year,” he said.

A bond trader said “all eyes are now on the FOMC (Federal Open Market Committee), where the Fed is widely expected to hike rates once again.”

The FOMC, the US central bank’s policy-making body, is scheduled to meet on Dec. 12-13. — Mark T. Amoguis

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