Yields end week mixed ahead of US CPI report

LOCAL DEBT YIELDS ended mixed last week as market players stayed on the sidelines in anticipation of leads from the release of US key economic data and today’s Bureau of the Treasury auction.

Yields on government securities, which move opposite to prices, fell by an average of 2.19 basis points (bps) week on week, data from the Philippine Dealing & Exchange Corp. as of Jan. 12 showed.

“For the week, yields are down on the short-end of the curve by up while closing just mixed for the medium to long ends. Prospects of multiple rate hikes in the year from the Bangko Sentral ng Pilipinas and Federal Reserve likely put investor demand mostly just on the short-end,” Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc. (UnionBank), said in an e-mail.

“A bit of buying interest was seen, especially on the 5-year RTB (retail Treasury bond), pushing yields slightly lower. Some players may be bargain-hunting and still putting excess liquidity to work on the jumbo securities. The RTB 5-11 traded as low as 3.5 bps to 4.695% from 4.73% before some profit-taking pulled its yield back up to 4.7125%. The market registered P13.9 billion worth of trades in the day’s sessions.”

A bond trader said that the trading volume remained “anemic“.

“Bond traders enjoyed some shallow relief as Treasury yields were pushed lower briefly but trading volume remained anemic as dealers kept the sidelines.”

At the close of trading at the secondary market last Friday, in the short end of the yield curve, yields on the 91-day Treasury bill (T-bill) went down by 88.56 to 2.2819%. The 182- and 364-day papers saw their rates increase by 76.34 bps to (3.2768%) and 28.79 bps to 3.1515%, respectively.

In the belly, yields on the three-, four-, five- and seven-year Treasury bonds (T-bond) dropped 3.84 bps to 4.232%, 10.5 bps to 4.8232%, 1.26 bps to 4.7129%, and 1.07 bps to 5.3179% respectively, while the two-day T-bond climbed to 4.24 bps to yield 3.9535%.

In the long end of the curve, the 10-year security saw its rate go up 0.04 to 5.795%, while the rate of the 20-year T-bond went down by 26.09 bps to 5.7752%.

Looking forward, UnionBank’s Mr. Asuncion said: “Aside from US consumer price inflation (CPI) data scheduled for release Friday night, another source of lead for [this] week would be the T-bill auction on Monday. Indicative rates for the 91-day 182-day, and 364-day bills are at 2.1-2.3%, 2.5-2.6%, and 2.7-2.9%, respectively.”

“We may expect more of the same subdued activity as players await more leads as the US releases its CPI and retail sales data. On the local front, we have the T-bill auction on Monday, the first in over four weeks,” Mr Asuncion added.

Underlying US consumer prices recorded their largest increase in 11 months in December amid strong gains in the cost of rental accommodation and health care, bolstering expectations that inflation will gain momentum this year.

The US Labor Department said its Consumer Price Index excluding the volatile food and energy components rose 0.3% last month also as prices for new motor vehicles, used cars and trucks and motor vehicle insurance increased.

That was the biggest advance in the so-called core CPI since January and followed a 0.1% gain in November. Core CPI increased 1.8% in the 12 months through December, picking up from 1.7% in November. Economists polled by Reuters had forecast core CPI rising 0.2% month-on-month and holding steady at 1.7% on an annual basis.

Weak import and producer price reports this week had raised concerns about the inflation outlook, although the two reports do not have a strong correlation with the CPI data.

Economists are hoping that a tightening labor market, rising commodity prices and a weak dollar will lift inflation toward the Federal Reserve’s 2% target this year.

The US central bank’s preferred inflation measure, the personal consumption expenditures price index excluding food and energy, has undershot its target since May 2012.

The US central bank is forecasting three rate hikes this year. It increased borrowing costs three times in 2017.

Meanwhile, the bond trader said the local debt market will be taking its cue from global bond movements and the Bureau of the Treasury’s first T-bill auction for this year scheduled today. — Lourdes O. Pilar