YIELD TRACKER

BETS OF faster inflation in the near term as food costs continued to increase pushed yields on government securities (GS) to soar last week.

GS yields, which move opposite to prices, went up across the board last week, increasing by an average of 29.99 basis points (bps) week on week, based on the PHP Bloomberg Valuation Service Reference Rates as of March 12 published on the Philippine Dealing System’s website.

Yields on the 91-, 182- and 364-day Treasury bills rose by 15.63 bps, 14.63 bps, and 17.06 bps, respectively, to 1.2379%, 1.3413%, and 1.854% on Friday from their week-ago levels.

At the belly, the rates of two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) jumped by 28.24 bps, 39.03 bps, 43.79 bps, 44.78 bps, and 39.66 bps, respectively, to 2.4674%, 2.8768%, 3.1865%, 3.4489%, and 3.8755%.

The rates of longer-termed papers likewise increased, with the 10-, 20-, and 25-year T-bonds rising by 39.61 bps, 23.07 bps, and 24.38 bps, respectively, to yield 4.3767%, 5.1014%, and 5.1154%.

“Yields charged higher on the back of the global reflation story, with US Treasury yields floating higher after expectations for faster growth,” ING Bank N.V. Manila Branch Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

“On the domestic front, inflation has been the main story with the headline print expected to move even higher mainly due to supply-side disruptions,” Mr. Mapa said.

A bond trader shared the same assessment, saying local bond yields soared last week amid “lingering domestic inflation concerns” after the government released the February data.

“The release of encouraging unemployment report as of January 2021 at 8.7% has provided further support for local yields to inch higher as the recent unemployment imprint suggested that the Philippine labor market remains on track to recover from the COVID-19 (coronavirus disease 2019) pandemic,” the bond trader added in an e-mail.

The selloff in US Treasuries resumed on Friday to push the rate of the benchmark 10-year paper above the one-year high of 1.60%, on track to increase for the seventh straight week, as the market expects inflation to pick up amid vaccine rollouts and after US President Joseph R. Biden, Jr. signed a $1.9-trillion stimulus program on Thursday to fuel the world’s largest economy, Reuters reported.

Back home, the Philippine Statistics Authority (PSA) earlier reported that February headline inflation stood at 4.7%, the highest reading in 26 months, as food costs continue to rise.

This pushed inflation to average at 4.5% for the first two months, already above the Bangko Sentral ng Pilipinas’ 2-4% target range for the year.

Meanwhile, preliminary results of the January round of the Labor Force Survey reported around 3.953 million unemployed Filipinos, up from 3.813 million in October 2020 and 2.391 million in January 2020.

This put the unemployment rate at 8.7% in January, unchanged from October 2020 but higher than the 5.3% seen in January 2020.

Traders said the market will be monitoring the meetings of the US and Japan central banks for leads this week.

“Local yields, tracking their global peers, might increase as the US Federal Reserve and the Bank of Japan are expected to keep their respective policy settings unchanged with market expectations of no potential hints on bond market intervention from both monetary authorities,” the bond trader said.

The US Federal Reserve will meet on March 16-17 while the Bank of Japan will review its policy settings on March 18-19.

Mr. Mapa, meanwhile, said local bond yields will continue to track US Treasuries’ movements and domestic inflation expectations. — Lourdes O. Pilar

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