YIELDS on government securities (GS) went up last week on the back of better-than-expected US jobs data, which increased the possibility of another US Federal Reserve rate hike within the year.
GS yields went up by an average of 2.7 basis points (bps) week on week, data from the Philippines Dealing & Exchange Corp. as of Aug. 11 showed.
“GS yields increased [last] week, as better-than-expected US labor data increased the chances of another US rate hike before the year ends,” said Land Bank of the Philippines market economist Guian Angelo S. Dumalagan.
“There was also profit taking towards the end of the week, ahead of the US inflation report,” Mr. Dumalagan added.
US employers hired more workers than expected in July and raised their wages, signs of labor market tightness that likely clears the way for the Fed to announce a plan to start shrinking its massive bond portfolio.
The US Labor Department reported last Aug. 4 that non-farm payrolls increased by 209,000 jobs last month amid broad-based gains. June’s employment gain was revised up to 231,000 from the previously reported 222,000.
Meanwhile, data released last week showed the US consumer price index edging up by 0.1% month-on-month in July, after being unchanged in the previous month. The figure is 1.7% up year-on-year. The July print was lower than the market consensus’ of 1.8% and the Fed’s target of 2% inflation based on a separate Commerce Department price gauge.
However, the rise in the yields was tempered by the dovish speech of US Fed’s Charles Evans, Mr. Dumalagan noted. The Chicago Federal Reserve Bank president said low inflation won’t stop the Fed from trimming its $4.5 trillion balance sheet next month.
Geopolitical concerns between the US and North Korea also pushed the yields down in the secondary market last week, he said.
On the local front, the reissued seven-year Treasury bond (T-bond) last week was well received, with bids totalling more than twice the offer.
The local currency also dipped further last week ahead of the US inflation report and the growing concerns between the US and North Korea. The peso closed at P50.98 per dollar last Friday, its weakest finish in nearly 11 years.
At the secondary market, the short end of the yield curve saw increases as the 91-, 182- and 364-day Treasury bills (T-bills) saw their rates increase by 6.4 bps (2.1953%), 11.8 bps (3.0032%) and 19.8 bps (3.0721%), respectively.
In the belly of the curve, yields on the two-, four-, and five-year T-bonds went up by 1.4 bps (3.6411%), 19.5 bps (4.2179%), and 8.9 bps (4.7179%), respectively.
In the long end, the yield on the 20-year T-bond was also up by 28.9 bps at 5.4429%.
On the other hand, yields on the three-, seven- and 10-year papers fell respectively by 5.3 bps (3.8338%), 31.9 bps (4.4599%) and 32.5 bps (4.6352%).
For this week’s trading, Mr. Dumalagan said GS yields might increase amid the likely upbeat second-quarter gross domestic product growth data.
The Philippine Statistics Authority will release official second-quarter economic growth data on Thursday.
“Hawkish hints in the minutes of the recent US monetary policy meeting might also push yields higher by pointing to tighter US monetary conditions ahead,” Mr. Dumalagan said.
Minutes of the Fed’s latest policy meeting are slated for release on Wednesday. — Ranier Olson R. Reusora with Reuters
