Yield Tracker

By Genshen L. Espedido

YIELDS ON government securities moved sideways last week amid lack of market leads, prompting investors to take profit instead as the year comes to a close.

Debt yields, which move opposite to prices, inched up by an average of 0.5 basis point (bp) on a week-on-week basis, according to the PHP Bloomberg Valuation Service Reference Rates as of Nov. 22 published on the Philippine Dealing System’s website.

“Strong two-way interest was noted throughout the week as investors await for fresh catalysts in the form of any progress on trade issues between the US and China,” Robinsons Bank Corp. peso sovereign debt trader Kevin S. Palma said in a text message last Friday, noting that GS yields continued to trade within a “tight band” on a weekly basis.

“In line with this, dealers were content servicing end-user requirements amid reinvestment flows ahead of a bond maturity last Nov. 22,” he said, referring to seven-year bond worth about P197 billion, which were originally issued in 2012 with a coupon rate of 3.8750% and was reissued last March 31, 2016.

For his part, ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said in a separate e-mail interview that yields last week adjusted higher “on the back of some profit-taking moving into yearend.”

“With further BSP easing unlikely for the balance of the year and inflation expected to begin adjusting higher, investors have been trimming positions on longer-tenor securities causing a slight steepening of the yield curve,” he added.

President Xi Jinping said China wants to work on the “phase one” trade agreement with the United States, but he warned of retaliation when necessary, according to a Reuters report.

Negotiations for this agreement could continue until next year, as initial trade deal could take as long as five weeks to work out, Reuters said.

At the end of the trading last Friday, yields ended mixed across the board as 91- and 364-day Treasury bills (T-bill) went down by 0.5 bp and 3.8 bps, respectively, to 3.174% and 3.518%. Meanwhile, the yield on 182-day T-bill rose by 3.5 bps to 3.338%.

At the belly of the curve, the rates on the two-, three-, four-, five- and seven-year Treasury bonds (T-bond) decreased by 2.4 bps (3.846%), 2.3 bps (3.98%), 2.3 bps (4.118%), 1.8 bps (4.258%) and 0.3 bp (4.5%), respectively.

Meanwhile, at the long end, yields on the 10-, 20- and 25-year T-bonds went up by 1.4 bps (4.720%), 6.9 bps (5.234%), and 7.3 bps (5.259%).

“Expect choppy trading with upward bias to persist as traders will keep a keen eye on the result of the 20-year FXTN auction on Tuesday and to remain highly vigilant for any leads regarding US-China trade issues,” Mr. Palma said.

“[M]arket players have been cautious with potential bond supply on the BTr’s (Bureau of the Treasury) 20-year auction next week which is expected to clear at slightly elevated levels of 5.2% or higher,” Mr. Liboro said.

The BTr will auction off reissued 20-year Treasury bond worth P20 billion on Nov. 26. Originally issued last Jan. 24, it has a remaining life of 19 years and two months and a coupon rate of 6.750%.

The government plans to borrow P220 billion from the domestic market this quarter as it looks to raise P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of the country’s gross domestic product.

RELATED ARTICLESMORE FROM AUTHOR