Yields end flat amid lack of fresh leads

YIELDS ON government securities (GS) ended flat on Friday from week-ago levels amid a lack of fresh leads that would spur demand for debt papers.

GS yields fell by 1.9 basis points (bps) on average week on week, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates as of Dec. 11 published on the Philippine Dealing System’s website.

“The overall condition of the market currently is that it’s waiting for more catalysts before it really swings,” said Security Bank Corp. Chief Investment Officer for Trust and Asset Management Group Noel S. Reyes in a telephone interview.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a mobile phone message that last week’s trading activity was characterized mainly by market players positioning ahead of the Bangko Sentral ng Pilipinas’ (BSP) monetary policy meeting and the Bureau of the Treasury’s upcoming auction of seven-year papers this Thursday.

“The external trade data release failed to distract the market’s focus on realigning positions consistent with upcoming events,” Mr. Asuncion added, referring to the government’s release of October foreign trade data last week.

Tomorrow’s auction of P30-billion worth of seven-year Treasury bonds (T-bonds) will be the last offering for the year, following today’s offering of P20-billion worth of 91-, 182-, and 364-day Treasury bills (T-bills).

Meanwhile, the BSP’s Monetary Board will have its final policy meeting for this year on Thursday, Dec. 17.

The central bank last month cut benchmark interest rates anew in a bid to support the economy amid continued uncertainties brought by the ongoing coronavirus pandemic and the recent typhoons.

The Monetary Board trimmed the rates on the BSP’s overnight reverse repurchase, lending, and deposit facilities by 25 bps to 2%, 2.5%, and 1.5%, respectively. The monetary authority has already lowered interest rates by 200 bps so far this year.

At the secondary market last Friday, yields on the 91-, 182-, and 364-day T-bills went up by 0.5 bp, 1.3 bps, and 3.1 bps, respectively, to 1.125%, 1.443%, and 1.732%. 

On the other hand, bonds at the belly of the curve rallied with yields on the two-, three-, four-, five-, and seven-year T-bonds going down by 2.7 bps (to 1.93%), 3.8 bps (2.188%), 6.2 bps (2.4%), 7.3 bps (2.577%), and 3.7 bps (2.831%).

At the long end, the 10- and 25-year T-bonds saw their rates go down by 2.1 bps (3.007%) and 0.6 bp (3.955%), respectively. Meanwhile, the yield on the 20-year debt paper marginally increased by 0.6 bp to 3.954%.

Security Bank’s Mr. Reyes expects a “slight flattening” in the yield curve ahead of expected window-dressing for the yearend.

“Since the [yield] curve is very steep [with rates on the short-end being very low and long-term yields being higher] pre-Monetary Board levels, I would likely expect a reversal of that trend,” Mr. Reyes said.

“There’s a steepening expectation, and [this] week would be the only complete week of trading, because the following week would be Christmastime and activity would drop significantly,” he added.

For UnionBank’s Mr. Asuncion: “Yields would likely move around the upcoming events mentioned [BSP meeting and seven-year auction] and contour itself with what has happened [last] week,” he said.

“Regardless of the BSP’s action, much of [this] week’s activity will be high on trimming durations as 2020 ends,” he added. — Ana Olivia A. Tirona