Yields on government debt climb amid renewed COVID-19 concerns

By Lourdes O. Pilar, Researcher

YIELDS on government securities (GS) ended mixed last week as market players reacted to the imposition of a stricter lockdown in Metro Manila and nearby provinces to help curb the surge in coronavirus disease 2019 (COVID-19) cases.

On average, GS yields rose by 1.51 basis points (bps) week on week, according to the PHP Bloomberg Valuation (PHP BVAL) Service Reference Rates published on the Philippine Dealing System’s website as of March 31.

At the secondary market on Wednesday, the yield on the 182-day Treasury bills (T-bills) ended higher by 5.51 bps to 1.5198%. Meanwhile, rates on the 91- and 364-day T-bills fell by 1.67 bps and 2.71 bps, respectively, to 1.2839% and 1.9078%.

At the belly, Treasury bonds (T-bonds) saw their yields higher from week-ago levels. Rates on the three-, four-, five-, and seven-year T-bonds went up by 1.79 bps (2.7887%), 5.16 bps (3.0870%), 8.27 bps (3.3947), and 11.09 bps (4.0138%). Only the two-year debt papers saw their yields decline with 1.09 bps to 2.4190%.

At the long end, the rates of the 10-year T-bonds increased by 3.50 bps, yielding 4.4085%. On the other hand, the 20- and 25-year papers fell by 6.44 bps and 6.76 bps to 4.9389% and 4.9297%.

“Participants took profit ahead of the long break… although light volume was observed as most opted to stay on the sidelines,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in an e-mail.

Financial markets were closed from April 1 to 2 in observance of the Holy Week.

In a separate e-mail, a bond trader said last week’s yield movements was “basically a tug of war” and inflation expectations and outlook on economic growth following the stricter lockdown imposed on Metro Manila and the nearby provinces

“Basically, it was a tug of war between inflation expectations and the growth outlook following the lockdown,” a bond trader said via e-mail.

The government has placed Metro Manila and the provinces of Bulacan, Rizal, Cavite, and Laguna under enhanced community quarantine, the strictest lockdown level, for two weeks due to a surge in COVID-19 infections.

The Philippine economy slumped to a record 9.5% last year as it implemented one of the longest and most stringent lockdowns in the world.

This year was seen to be a period of economic recovery as the government gradually reopens sectors of the economy. Recent developments, however, put a damper on this outlook.

The Department of Health reported 11,028 new COVID-19 cases yesterday, bringing the total number of cases to 795,051 and active cases to a record 135,526.

Meanwhile, inflation settled at 4.5% for the first two months of the year, beyond the central bank’s 2-4% target for the year. This was also faster than the 2.8% posted in the same period last year.

The next inflation report for the month of March will be released tomorrow [April 6].

For the bond trader, the direction of trading this week would depend on whether the government will extend the strict lockdown, as well as the release of inflation data for March.

For Security Bank’s Mr. Roces: “We expect [the] market to trade sideways ahead of the CPI data [this week].”