DEVELOPMENTS ABROAD sent yields on government securities (GS) upward last week as investors were on profit-taking mode ahead of pronouncements made by monetary authorities in Europe and the United States.
Local debt yields, which move opposite to prices, climbed 6.20 basis points (bps) on average week-on-week, data from the Philippine Dealing & Exchange Corp. as of Aug. 25 showed.
“GS yields generally increased this week due to profit taking ahead of the speeches of European Central Bank (ECB) President Mario Draghi and US Federal Reserve Chair Janet Yellen in the Jackson Hole Economic Policy Symposium,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank).
“Prior to rising on the last day of the week, GS yields initially fell due to safe-haven buying amid political noise in the US, particularly US President Donald Trump’s comment to terminate NAFTA (North American Free Trade Agreement). GS yields generally tracked the movement of US interest rates,” he said.
Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines (UnionBank), was of the same view that yields were “largely impacted” by developments abroad: “Notice that a lot of political noise is coming from the US. The tendency (is) for market players to flock to more secure investments when there are a lot of uncertainties in the market. For the Philippines, a lot of trades have been volatile.”
Meanwhile, a bond trader said that local bond yields took their cue from US Treasuries, which were generally lower “given the busy week in Washington” as President Trump struggles to get the Republican Party behind him “as he threatened to push the government into a shutdown” if he does not get the funding needed for putting up the controversial US-Mexican border wall.
At the annual meeting of central bankers in Jackson Hole, Wyoming, Ms. Yellen defended the measures enacted during the financial crisis almost a decade ago, while Mr. Draghi talked about the need for global cooperation in matters of trade and economic development in advanced economies.
At the short end of the yield curve, the 182-day Treasury bill (T-bill) saw its rate jump by as 37.05 bps to fetch 2.9371% while the 91- and the 364-day debt papers rallied, with yields going down 1.58 bps (2.1624%) and 11.58 bps (2.8610%), respectively.
At the belly, the yield on the seven-year Treasury bond (T-bond) went up 29.56 bps to 4.7839%. This was followed by the five-year tenor, which saw its yield rise 2.04 bps (4.5904%); the two-year T-bond with 1.39 bps (3.8121%); and the four-year T-bond with 1.37 bps (4.2132%). On the other hand, the three-year paper yielded 3.8061%, down 3.02 bps.
At the long end, the 20-year T-bond saw its yield increase 7.39 bps (5.5089%) while the 10-year tenor was nearly flat, going down by 0.61 basis point (4.9857%).
Looking forward, local yields will “still probably derive direction from the movement of US Treasuries in reaction to the Jackson Hole conference over the weekend,” the bond trader said.
For Landbank’s Mr. Dumalagan, GS yields “might rise further” amid expectations of strong US economic data on growth, spending, income and employment.
UnionBank’s Mr. Asuncion expects more volatility in the coming weeks, but noted that the strength of the Philippine economy is helping buoy the bond market “in spite of internal and external noises.” — A.G.A. Mogato
