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Yields on gov’t debt drop

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YIELDS on government securities (GS) moved sideways last week as investors reacted to the stronger peso and financial market developments abroad.

On the average, GS yields — which move opposite to prices — were down by 6.92 basis points (bps) week on week, data from the Philippine Dealing & Exchange Corp. as of June 29 showed.

Michael L. Ricafort, economics and industry research division head at Rizal Commercial Banking Corp. (RCBC), said the stronger exchange rate of the peso against the US dollar “partly” led to the decline in most tenors.

“Stronger peso tends to reduce importation costs/prices, thereby reducing inflationary pressures. This has also partly led to the week-on-week declines in most of the local interest rate tenors,” noted Mr. Ricafort.

Mr. Ricafort said an “improvement in global risk appetite with the latest gains in the major global stock markets and stronger major global currencies versus the US dollar” contributed to rally in local securities.

Sharing the same view, Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, said last week’s yield movements were also influenced by the recent turn of events overseas.

“This is true for a lot of emerging economies for the past few weeks… Investors were looking for reasons to cheer about at the end of a tumultuous quarter of trade tensions and various political risks,” Mr. Asuncion said.

With Wall Street gains at a three-week high and the recovery of European indexes, world stocks rallied on Friday after a “volatile week pegged to a growing US-led trade battle with other top global economies,” Reuters reported.

Back home, the peso ended at P53.34 against the greenback on Friday, 17.5 centavos stronger than the P53.515-per-dollar finish logged on Thursday. This was the peso’s strongest performance since June 22, when it closed at P53.28.

At the secondary market on Friday, mixed movements were seen across the curve. At the short end, the 91-, and 182-day Treasury bills (T-bill) went down by 4.65 bps and 39.40 bps to yield 3.9071% and 3.8453%, respectively. The 364-day paper inched up by 16.23 bps to 4.4742%.

At the belly, yields on the two-, three-, and five-year Treasury bonds (T-bond) lost 24.97 bps (4.7842%), 0.61 bp (5.0223%), and 8.47 bps (5.762%), respectively. Meanwhile, the rate of the four- and seven-year bonds increased by 36.12 bps (5.6768) and 3.99 bps (6.2482%), respectively.

At the long end, the 10-year T-bond saw its yield go down by 48.37 bps to 6.4217%, while yield on the 20-year tenor went up by 0.89 bp to 7.3607%.

Looking forward, UnionBank’s Mr. Asuncion said economic data releases will drive yield movements this week, but said he is also “expecting surprises again from external issues previously mentioned.”

For RCBC’s Mr. Ricafort, financial markets will be anticipating the latest Philippine inflation data to be released on July 5, and the recent increase in global crude oil prices (3.5-year highs), as “major leads/catalysts for local interest rate markets.” — Lourdes O. Pilar with Reuters