Yield Tracker

By Christine J. S. Castañeda

YIELDS on government securities (GS) traded in the secondary market went down last week as they tracked the movement of US Treasury rates amid weaker-than-expected US data and political concerns.

Yields down on US data

On average, GS yields — which move opposite to prices — went down by 15.16 basis points (bps), data from the Philippine Dealing & Exchange Corp. as of August 4 showed.

“GS yields unexpectedly fell [last] week amid weaker-than-expected US data on ADP employment, manufacturing and non-manufacturing,” said Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines (Landbank).

“Domestic interest rates tracked US Treasuries, which declined because of weak US reports and political concerns,” he added.

Carlyn Therese X. Dulay, vice-president and head of institutional sales at Security Bank Corp., shared this view, saying: “Local government securities traded lower [last] week, tracking lower UST yields with dependency on mixed US data and geopolitical concerns.”

“End client interest in the short end persisted throughout the week, causing yields to rally slightly on demand,” she added.

The ADP National Employment Report released last week showed US private employers added 178,000 jobs in July. This was lower than economists’ estimates of as much as 225,000 jobs added.

On the other hand, Institute for Supply Management in the US said the non-manufacturing index fell to 53.9 in July from 57.4 in the previous month, Reuters reported. This was the lowest reading since August 2016.

Meanwhile, the index of national factory activity was also down to 56.3 last month from 57.8 in June. A reading above 50 signals an expansion in the sector while less than 50 indicates a contraction.

At the secondary market on Friday, in the short end of the curve, the 91-day Treasury bill (T-bill) lost 83.75 bps to yield 2.1311%. The 182- and 364-day papers also saw their yields decline by 10.82 bps and 15.10 bps to 2.8857% and 2.8744%.

In the belly, yields on the two-, three-, four-, and seven-year Treasury bonds (T-bonds) were down by 1.96 bps (3.6268%), 1.20 bps (3.8868%), 27.75 bps (4.0225%), and 3.03 bps (4.7786%), respectively. On the other hand, the rate of the five-year T-bond remained unchanged at 4.6286%.

In the long end, the 10- and 20-year T-bonds decreased by 6.18 bps and 1.83 bps to yield 4.96% and 5.1537%, respectively.

For this week, Landbank’s Mr. Dumalagan said: “ GS yields might rebound [this] week, as expectations of another US rate hike this year might improve amid likely firm US reports on producer prices, non-farm payrolls, and consumer inflation.”

Security Bank’s Ms. Dulay said on Friday: “Expect yields to move range bound next week assuming [non-farm payroll] is in line with expectations at [180,000 increase], and ahead of the scheduled FXTN 7-59 (fixed-rate Treasury note) re-issuance with market expecting 4.40% to 4.55%.”

According to a Reuters report, the US economy created 209,000 jobs in July, beating economists’ expectation of 183,000.