Gov’t debt yields rally on buying interest

YIELDS on government securities (GS) dipped last week amid sustained buying interest as the central bank said it will keep benchmark interest rates low to support economic recovery.

Debt yields, which move opposite to prices, dropped 2.7 basis points (bps) on the average week on week, based on the PHP Bloomberg Valuation Service Reference Rates as of Jan. 22 published on the Philippine Dealing System’s website.

With the exception of the 91-day Treasury bills (T-bills) and 25-year Treasury bonds (T-bonds), all debt papers saw their yields go down on Friday from the previous week. At the short end of the yield curve, the rates of the 182- and 364-day T-bills fell 2.7 bps and 1.1 bps, respectively, to 1.36% and 1.596%. Meanwhile, the yield on the 91-day T-bill went up 3.6 bps to 1.165%.

At the belly, the seven-year T-bond saw its yield go down by 5.1 bps to 2.743%. Similarly, the rates of the two-, three-, four-, and five-year papers fell by 3.8 bps (to 1.792%), 3.3 bps (2.069%), 3.5 bps (2.322%), and 3.4 bps (2.537%).

At the long end, yields on the 10- and 20-year T-bonds fell by 10.1 bps (2.899%) and 0.5 bp (3.94%), respectively. On the other hand, the 25-year paper was flat with a 0.1-bp increase (3.933%).

“[Last] week saw decent buying interest for government securities as BSP (Bangko Sentral ng Pilipinas) reiterated their accommodative policy as well as expectations of the continued weakening of GDP (gross domestic product) for the fourth quarter of 2020,” First Metro Asset Management, Inc. (FAMI) said in an e-mailed reply to questions.

“Liquidity favored the short tenors up to the curve’s belly as inflation expectations remain on the high side given reports of persistently elevated food prices,” FAMI added.

Philippine Bank of Communications (PBCom) Senior Trader Justin Robert G. Ladaban noted strong interest in short-dated papers brought about by market liquidity.

“This has anchored yields in general with the longer tenors starting to show better relative value as shown in the BTr’s (Bureau of the Treasury) last T-Bond auction of the FXTN 10-61,” Mr. Ladaban said in an e-mail.

He added that the BSP has been consistent in signaling its intention to keep interest rates low despite headline inflation going above 3% in the last two months. 

Inflation was at 3.5% in December, the fastest pace in 22 months amid higher food prices and transport rates during the holiday season.

The uptick was caused by “short-term considerations” that are bound to happen regardless of rate cuts implemented by the central bank, BSP Officer-in-Charge Francisco G. Dakila, Jr. said in a briefing last week.

Mr. Dakila said inflation is expected to stay within target over the next two years despite a recent uptick in global oil prices as well as food prices due to supply disruptions caused by typhoons. This gives the BSP room to remain accommodative this year, he said.

The central bank last year cut benchmark interest rates by 200 bps, which brought the yields on its overnight reverse repurchase, lending, and deposit facilities to record lows of 2%, 2.5%, and 1.5%, respectively.

This week’s yield movements will take their cue from GDP data, the analysts said.

“We should see yields continue to grind lower [this] week ahead of the release of the fourth-quarter GDP data,” Mr. Ladaban said.

FAMI said yields are “expected to trade sideways” ahead of the fourth-quarter and full-year 2020 GDP print and BTr’s borrowing schedule for February.

“We expect, however, for the FXTN 3-23 maturity to support demand for bonds in the front up to belly space,” FAMI said.

The Philippine Statistics Authority will release fourth-quarter and full-year 2020 GDP figures on Thursday.

The government expects the economy to have shrunk by 8.5-9.5% in 2020. GDP declined by 11.5% in the third quarter. This brought the total contraction in GDP for the first nine months to 10%. — Marissa Mae M. Ramos