YIELDS ON government securities (GS) ended flat last week with investors focusing on repositioning their bond holdings and digesting new developments on the coronavirus vaccine and the US economy as they gear towards the yearend.

On average, GS yields were down by a basis point (bp) week on week, according to the PHP Bloomberg Valuation Service Reference Rates as of Dec. 23 published on the Philippine Dealing System’s website.

At the secondary market on Friday, yields on the short-end and belly of the yield curve rallied while those in the long-end marginally increased. The rates on the 91-, 182-, and 364-day Treasury bills fell by 1.5 bps, 0.7 bp, and one basis point, respectively, to 1.131%, 1.427%, and 1.713%.

At the belly of the curve, yields on the two-, three-, four-, five-, and seven-year Treasury bonds dropped by 1.3 bps (1.878%), 3 bps (2.120%), 3.7 bps (2.337%), 2.6 bps (2.534%), and 0.3 bp (2.805%).

On the other hand, the 10-, 20-, and 25-year bonds saw their yields go up by 2.4 bps, 0.2 bp, and 0.1 bp, to end with 3.008%, 3.896%, and 3.879%.

“[The movement was due to investors] repositioning ahead of the holidays, but yields are generally lower as the market focuses on [the] timing of vaccine availability, which has implications on growth,” a bond trader said through a Viber message.

In an e-mail, another bond trader attributed the yield movements last week to developments abroad, particularly the US Congress’ endorsement of a second stimulus bill and “renewed market concerns following the discovery of a more infection strain of COVID-19 (coronavirus disease 2019) in the United Kingdom.”

Last week saw the US Congress approving a stimulus package worth nearly $900 billion that would provide a boost for the world’s biggest economy that is also among the hardest-hit by the COVID-19 pandemic. The package is part of a $2.3-trillion bill of which $1.4 trillion is allocated for government spending for the coming year. President Donald J. Trump is expected to sign the legislation once it reaches his desk. However, he has threatened not to sign it as he wants Congress to put a bigger amount in the stimulus checks.

At home, the Philippines last Wednesday banned inbound flights from the United Kingdom (UK) effective the following day until year-end after a rapidly spreading coronavirus strain caused cases to soar there. Other countries in Europe have also closed their doors to British travelers after the UK tightened its COVID-19 restrictions for London and nearby areas.

Scientists first discovered the new strain, which they said is 70% more infectious, in a patient in September.

Last month, the government in partnership with private sector players inked a deal with AstraZeneca for 2.6 million vaccine doses worth P700 million. The deal was fully funded by businesses and is expected to reach the country by the second quarter of next year, to inoculate about 1.5 million Filipinos.  Moreover, the government is also expecting to finalize a deal to procure vaccines from Chinese drug maker Sinovac Biotech Ltd., according to National Task Force Against the COVID-19 chief implementer Carlito G. Galvez, Jr. earlier this month. It is also in talks with the Serum Institute of India Ptv. Ltd. for the supply of 30 million doses of Covovax.   

The government is currently seeking a $325-million (P15.63 billion) loan from the Asian Development Bank (ADB) to purchase COVID-19 vaccines, ADB Country Director for the Philippines Kelly Bird said last Monday.

The bond trader expects the remaining days of this year to be “quiet with a downward bias on yields.”

The second bond trader also expects market volumes to be “generally thin” towards the final trading days of the year, but substantial market-moving developments that would potentially affect the economic outlook for next year “might continue to influence the last trading days of the year.”

“For next year, yields are broadly expected to rise especially on the longer end of the yield curve as the gradual resumption of economic activity might revive inflation expectations. The same optimism on economic recovery might also drive investors away from safe-haven bonds towards riskier assets such as equities. However, short-term yields might remain subdued as the BSP (Bangko Sentral ng Pilipinas) is likely to keep policy rates low to provide an accommodative monetary policy during the country’s economic recovery,” the bond trader added. — Jobo E. Hernandez