Yields on government debt climb on US Treasuries’ movement, inflation

YIELDS ON government securities (GS) jumped last week amid rising inflation expectations and US Treasury rates.

GS yields, which move opposite to prices, went up by an average of 21.97 basis points (bps) week on week, based on the PHP Bloomberg Valuation Service Reference Rates as of Feb. 26 published on the Philippine Dealing System’s website.

“The rising 10-year US Treasuries and rising inflation expectations were reasons for the rise,” Jonathan L. Ravelas, chief market strategist at BDO Unibank, Inc., said in a text message.

“Basically, the theme [last] week was higher interest rates on inflation concerns. Adding to the pressure is the same upward pressure in bond yields in US,” a bond trader said in a Viber message.

The Bangko Sentral ng Pilipinas (BSP) gave a February inflation forecast range of 4.3% to 5.1% last Friday on faster fuel and food price increases. This is already beyond the 2-4% inflation target this year and faster than two-year high of 4.2% in January.

The February inflation report will be released on March 5.

The central bank left benchmark interest rates untouched at record lows at its Feb. 11 policy meeting but adjusted its average inflation forecast for this year to 4% from 3.2% previously, citing upward pressures from food and oil prices. For next year, it trimmed its inflation forecast to 2.7% from 2.9%.

It will hold its next policy meeting on March 25.

Meanwhile, yields on the benchmark 10-year US Treasuries surged above 1.6% last week for the first time in a year amid weaker-than-expected bids for offered seven-year notes, Reuters reported.

US bond yields had accelerated last week after adjusting for inflation, an indication that central banks would begin to scale back ultra-loose policies even officials keep a dovish stance.

US Federal Reserve Chair Jerome Powell said on Wednesday that the US central bank would not tighten its policy until the economy gets better.

Back home, yields increased across the curve. Yields on the 91-, 182- and 364-day Treasury bills went up 14.67 bps, 5.26 bps, and 5.92 bps, to 0.9962%, 1.1131%, and 1.5555%, respectively.

At the belly, the rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) rose by 11.93 bps (2.1151%), 10.88 bps (2.4536%), 11.53 bps (2.7532%), 15.58 bps (3.027%), and 34.49 bps (3.4814%).

Rates on long-tenored papers likewise climbed, with the yields on the 10-, 20-, and 25-year T-bonds rising by 60.40 bps (3.893%), 41.35 bps (4.4601%), and 29.61 bps (4.3132%), respectively.

Analysts said bond yields will likely move sideways this week as the economic environment remains uncertain.

“Markets to remain wary given uncertainty over inflation…and will likely remain so until the BSP’s guidance, if at all, when the February inflation number is released on Friday,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in an e-mail.

“Continue to expect interest rates to move sideways to up in the near term,” BDO’s Mr. Ravelas added.

“We see continuous upward pressure on yields ahead of the February CPI (consumer price index) data,” the bond trader said. — Lourdes O. Pilar