Yields on government debt end flat amid lack of leads

By Jochebed B. Gonzales, Senior Researcher
YIELDS ON government securities traded sideways last week on client-driven demand, with some investors tracking foreign exchange amid lack of domestic catalysts.
Data from the Philippine Dealing and Exchange Corp. as of Aug. 17 showed yields — which move opposite to prices — went up by just 0.71 basis point on the average week on week.
Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, described last week’s trading as “lackluster” with market participants catering mostly to their clients.
“It was a lackluster trading week with most activities centered on client servicing requirements,” Mr. Asuncion said. “Sentiment has been subdued as market players are looking for fresh leads.”
Daily traded volume averaged P7.6 billion last week.
For Rizal Commercial Banking Corp. (RCBC) economist Michael L. Ricafort, expectations on inflation and interest rates were already priced in by the local fixed income market.
He said investors monitored foreign exchange instead, particularly the Turkish lira, which has displayed increased volatility in the past week.
“PDST-R2 yields were slightly higher week on week, primarily brought about by the weaker peso exchange rate due to the stronger US dollar versus major global currencies after the market turmoil in Turkey,” Mr. Ricafort said.
“However, towards the end of the week, the Turkish lira already improved from record low levels vs. the US dollar, which also corrected lower versus major global currencies in the latter part of the week, after Qatar pledged US$15 billion in direct investments…”
The lira plunged to a record low of 7.24 against the US dollar last Monday amid worries of monetary policy intervention by Turkish President Recep Tayyip Erdogan, who expressed opposition to higher interest rates despite high inflation in Turkey.
The lira was last traded at 6.01 per dollar on Friday.
At the secondary market on Friday, yields on the two-, three- and 10-year Treasury bonds (T-bond) gained from a week earlier by 25.78 bps, 0.23 bps and 34.46 bps, respectively, to 5.2054%, 5.0636% and 6.7696%.
Meanwhile, the rate of the five-year T-bond declined the most, losing 21.55 bps to close at 5.922%. It was followed by the four-, seven- and 20-year bonds whose yields respectively shed 8.75 bps, 7.87 bps and 7.32 bps to finish at 5.8768%, 6.1463% and 7.3429%.
Also ending lower week-on-week were yields on the 91-, 182- and 364-day Treasury bills as they dropped 2.85 bps, 3.17 bps and 1.88 bps, respectively, to close at 3.1574%, 4.0894% and 4.8384%.
This week, the bond market may monitor again movements in the peso-dollar exchange rate, said RCBC’s Mr. Ricafort.
“If the peso remains relatively stable, PDST-R2 yields could be steady to a slightly lower and the yield curve could flattened a bit, especially if global financial markets continue to stabilize as well,” he said.
For UnionBank’s Mr. Asuncion, “We’re seeing yields moving sideways with upward bias in the near term.”