Debt yields mixed as BSP stays dovish

YIELDS ON government securities traded sideways last week after the Bangko Sentral ng Pilipinas (BSP) signaled it would maintain the low-interest-rate environment until the economy improves.

GS yields inched down by an average of one basis point (bp) week on week, based on the PHP Bloomberg Valuation Service (BVAL) Reference Rates as of Jan. 15 published on the Philippine Dealing System’s website.

At the end of trading on Friday, yields ended mixed across the board with Treasury bills (T-bills) edging down, as the 91-, 182-, and 364-day debt dropped by 0.4 bp, 1.7 bps, and 1.9 bps, respectively, to fetch 1.129%, 1.387%, and 1.607%.

At the belly of the yield curve, the two-, three-, and four-year Treasury bonds (T-bonds) decrease by 3.7 bps, 2.7 bps, and 0.9 bp, respectively, to 1.83%, 2.102%, and 2.357%. The five- and seven-year notes, however, went up by 1.2 bps and 1.9 bps to 2.571% and 2.794%.

At the long end, the 10-year paper inched up by 0.4 bp to 3%, while the 20- and 25-year papers declined by 1.7 bps and 1.4 bps, respectively, to fetch 3.945% and 3.932%.

“Recent movement was driven by the central bank ruling out further monetary action for the first half of this year over expectations of a major rebound in growth,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a viber message.

“The downside remains limited for now given expectations the BSP will remain accommodative for long,” Mr. Roces said.

BSP Governor Benjamin E. Diokno said at the BusinessWorld One-on-One interview on Wednesday that it will keep borrowing costs low until the economy rebounds to reach the government’s 6.5% to 7.5% growth target.

Fourth-quarter and full-year gross domestic product data will be reported by the Philippine Statistics Authority on Jan. 28.

The central bank slashed rates by a total of 200 bps last year to support the economy amid the coronavirus pandemic, bringing down overnight reverse repurchase, lending, and deposit rates to record lows of 2%, 2.5%, and 1.5%, respectively.

For this week, ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said investors’ eyes will be on the Bureau of the Treasury’s offering of seven-year T-bonds.

“The auction is likely to clear within the 2.75%-2.875% range and generate decent demand given that the five- and seven-year tenors continue to offer the most value along the yield curve,” Mr. Liboro said in an e-mail.

On Tuesday, the Treasury will auction off P30 billion in reissued 10-year bonds with a remaining life of six years and three months.

The Treasury is looking to borrow P140 billion from the local debt market this month: P80 billion via weekly T-bill auctions and P60 billion in fortnightly offerings of T-bonds.

The government plans to raise P3 trillion from local and foreign lenders this year to plug a budget deficit seen to hit 8.9% of gross domestic product. —  J.E. Hernandez