Yields drop on BSP, rising cases

YIELDS ON government securities (GS) rallied last week amid buying interest as rising coronavirus cases raised lockdown concerns, while the Bangko Sentral ng Pilipinas’ (BSP) decision to keep rates steady also affected trading.

Debt yields, which move opposite to prices, dropped by 8.82 basis points (bps) on average week on week, data from the PHP Bloomberg Valuation Service Reference Rates as of March 26 published on the Philippine Dealing System’s website showed.

“Strong buying interest swamped the GS market with yields of the belly to the long end of the curve trending lower,” Robinsons Bank Corp. peso sovereign debt trader Kevin S. Palma said in a Viber message.

“Concerns on renewed lockdown orders amid a continued rise in cases in the nation’s capital have somewhat complicated the country’s rebound prospects and have kept inflation expectations in check, thereby increasing chances for the BSP to keep its policy settings accommodative for longer,” he said.

“The local bond market found some reprieve brought about by softer US Treasury yields week-on-week…mainly due to some risk-off sentiment amid concerns on renewed lockdown orders on key European countries,” Mr. Palma added.

Manila and nearby provinces will return to stricter quarantine measures from Monday, a senior official said on Saturday, as the Philippines battles to contain a surge in coronavirus disease 2019 (COVID-19) cases that has strained hospitals, Reuters reported.

Presidential Spokesperson Herminio “Harry” L. Roque, Jr. said the measures, which will be in place until April 4, will ban nonessential movement, mass gatherings, dining in restaurants. They represent a further tightening of curbs imposed on March 22.

The Health department on Saturday reported 9,595 new coronavirus cases, marking the second straight day the daily jump in infections remained above 9,000.

Meanwhile, Philippine Bank of Communications Senior Trader Justin Robert G. Ladaban said yields dropped after the market’s strong support for the 10-year bond auction on Tuesday.

“Although they were generally higher than market levels prior to the auction, they were within market estimates. This drove the rally along with the fact that the BSP reiterated its intent to keep policy rates accommodative in spite of higher inflation print that we’ve been seeing the last couple of months and the fact that the market remains very liquid,” Mr. Ladaban said in a separate Viber message.

The Bureau of the Treasury (BTr) on Tuesday raised P30 billion as planned from its auction of reissued 10-year Treasury bonds (T-bonds) with a remaining life of nine years and three months. The offer was nearly twice oversubscribed as bids reached P53.92 billion. The bonds fetched an average rate of 4.614% versus the 3.066% seen in the previous offering. 

Meanwhile, the central bank left its key interest rate unchanged at a record low on Thursday, as it supports an economy whose recovery is at risk from a renewed surge in COVID-19 infections.

The Monetary Board kept the overnight reverse repurchase rate at an all-time low of 2% for a third consecutive meeting. Rates for the overnight lending and deposit facilities were also maintained at 2.5% and 1.5%, respectively.

The central bank has kept policy settings steady since its December meeting, but BSP Governor Benjamin E. Diokno has said they will respond accordingly when the need arises, especially if rising inflation causes second-round effects.

Headline inflation reached 4.7% in February, the highest since the 5.1% in December 2018.

The central bank upwardly revised its inflation outlook to 4.2% this year from the forecast of 4% given in February. The average print for 2022 is seen at 2.8%, slightly higher than the previous projection of 2.7%.

At the end of trading on Friday, the rates of short-dated debt papers rose compared with their week-ago levels. Yields on the 91-, 182-, and 364-day Treasury bills increased by 2.34 bps (to 1.3006%), 1.73 bps (1.4647%), and 0.31 bp (1.9349%), respectively.

On the other hand, the two-, three-, four-, five-, and seven-year T-bonds fell by 10.18 bps, 17.44 bps, 21.45 bps, 23.03 bps, and 20.32 bps, respectively, to fetch 2.4299%, 2.7708%, 3.0354%, 3.312%, and 3.9029%.

At the long end of the curve, yields on the 10- and 25-year debt also declined by 9.01 bps (4.3735%) and 0.36 bp (4.9973%), respectively. Meanwhile, the 20-year bond inched up by 0.43 bp to fetch 5.0033%.

“The market closed the week off the lows in terms of yields so it could establish a range [this] week,” Mr. Ladaban said, noting the market will take its cue from the BTr’s April auction schedule.

“Market players are likely to keep looking for developments onshore such as BTr’s borrowing schedule in April and BSP’s inflation forecast for March. For the week, expect some choppy trading ahead of the Holy weekend,” Robinsons Bank’s Mr. Palma added. — Marissa Mae M. Ramos