YIELDS on government securities (GS) traded in the secondary market went up slightly last week over Philippine and US inflation results and “lingering” trade tensions between the United States and China.
On average, GS yields — which move opposite to prices — rose 9.16 basis points (bp), data from the Philippine Dealing & Exchange Corp. as of July 13 showed.
“GS yields increased overall, despite some downward bias mid-week, as upbeat US inflation data [last Thursday] kept the US Federal Reserve on track to raising policy rates again in September this year,” said Land Bank of the Philippines (LANDBANK) market economist Guian Angelo S. Dumalagan.
“The rise in yields was capped by safe-haven buying amid lingering US-China trade tension,” he added.
A bond trader concurred: “Local GS yields rose, tracking the move of Treasury yields in reaction to higher inflation rates in the United States and fading fears for a trade war between the United States and China.”
Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, said: “There was demand on shorter-term bonds. This still indicates the general cautiousness brought about by the lingering uncertainty of trade protectionism espoused by US President Trump and China’s consequent response.”
Mr. Asuncion added this may also be related to the higher-than-expected inflation data and the possibility of further rate hikes by the Bangko Sentral ng Pilipinas (BSP).
Michael L. Ricafort, economics and industry research division head at Rizal Commercial Banking Corp. (RCBC), said expectations of further rate hikes here after the release of June inflation results caused upward adjustments in interest rates.
“Furthermore, the USD/peso exchange rate lingering among 12-year highs this week that could still lead to higher import prices and overall inflation, as well as increase the odds of further hike/s in local policy rates, have also caused the latest increase in local interest rates,” Mr. Ricafort added.
The Philippine Statistics Authority said prices of widely used goods rose 5.2% in June, the highest in at least five years. Year-to-date, headline inflation averaged 4.3%, exceeding the BSP’s 2-4% target for the year.
Meanwhile, US inflation was recorded at 2.9% in June — the highest since February 2012 — data from the Bureau of Labor Statistics showed.
At the secondary market on Friday, in the short end of the curve, the 91-day and 182-day Treasury bills (T-bills) went up by 1.38 bps and 18.31 bps to 3.2777% and 4.0085%, respectively. The 364-day paper also increased by 7.02 bps to 4.6327%.
In the belly, yields on the two-, five-, and seven-year Treasury bonds rose by 31.02 bps, 22.07 bps and 5.82 bps to 5.1161%, 6.0107% and 6.3490%. Meanwhile, the rates of the three-, and four-year bonds lost 1.18 bps (4.9648%) and 1.61 bps (5.6375%), respectively.
At the long end, 10-year T-bond saw its yield go up by 9.13 bps to 6.4461% while yield on the 20-year tenor was slightly down by 0.36 bps to 7.3589%.
Looking forward, RCBC’s Mr. Ricafort said: “Local interest rates could move sideways to slightly higher [this] week, especially if the USD/Peso exchange rate continues to hover among 12-year highs.”
“I expect more of the same [this] week, but I would like to anticipate the brewing trade war to result to a return to negotiations and finding a better way to address the US demands of China,” UnionBank’s Mr. Asuncion said.
For LANDBANK’s Mr. Dumalagan, “GS yields are still expected to move with an upward bias amid continued expectations of more US rate hikes ahead. Likely higher inflation readings from the Eurozone and Japan may also push yields higher by fuelling hawkish policy expectations.”
“The increase in yields might be capped by possibly mixed US economic data on retail sales and housing as well as continued safe-haven buying amid persistent trade war concerns,” Mr. Dumalagan added. — Christine Joyce S. Castañeda
