Yield Tracker

YIELDS ON government securities (GS) rose last week after the Treasury released its September borrowing plan and as the market awaited the US Federal Reserve’s Jackson Hole symposium.

GS yields rose by 1.37 basis points (bps) on average week on week, based on PHP Bloomberg Valuation Service Reference Rates as of Aug. 27 published on the Philippine Dealing System’s website.

Rates of most tenors rose last week, except for the four-year Treasury bond (T-bond), which dipped by 0.01 bp to yield 2.6124%.

At the short end of the curve, the 91-, 182-, and 364-day Treasury bills (T-bill) went up by 0.33 bp, 1.21 bps, and 0.74 bp, respectively, to fetch 1.1412%, 1.4420%, and 1.6315%.

At the belly, the yields on the two-, three-, five-, and seven-year T-bonds increased by 1.53 bps (to 1.9427%), 0.63 bps (2.2751%), 0.33 bps (2.9652%), and 1.59 bps (3.5982%), respectively.

The long end of the curve also climbed as the rates of the 10-, 20-, and 25-year papers rose by 1.07 bps (to 4.099%), 3.59 bps (4.9739%), and 4.01 bps (4.9601%), respectively.

First Metro Asset Management, Inc. (FAMI) said trading activity last week improved following the Bureau of the Treasury’s (BTr) announcement of its September borrowing plan, which showed less supply of longer-dated papers.

“Overall sentiment was also better ahead of Fed Chair [Jerome H.] Powell’s Jackson Hole speech as downside risks to global recovery emerge,” FAMI said in a Viber message.

The BTr last week said the government plans to raise P250 billion from local debt market in September, 25% higher than the August borrowing program, as market remains awash with cash.

Broken down, it is looking to borrow P75 billion via T-bills and P175 billion via T-bonds. T-bills worth P15 billion will be offered every week. Meanwhile, T-bonds worth P35 billion will also be auctioned off weekly — five-year bonds on Sept. 1, seven-year papers on Sept. 7 and 21, and 10-year debt on Sept. 14 and 28.

On the other hand, Mr. Powell, in his remarks at the virtual Jackson Hole conference on Friday, said there has been clear progress toward maximum employment and that he was of the view that if the US economy evolved broadly as anticipated, “it could be appropriate to start reducing the pace of asset purchases this year,” Reuters reported.

Meanwhile, ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said there was “sharp selling” over the last two weeks as expectations of lower inflation were largely offset by bond supply speculation, a gradual increase in global bond yields, and Bangko Sentral ng Pilipinas comments on its open market operations.

“This sentiment was reflected in the elevated bid levels at BTr’s 11-year bond auction earlier [last] week. Yields adjusted marginally lower after BTr opted not to award at the elevated bids,” Mr. Liboro said in an e-mail interview.

On Tuesday, the Treasury rejected all bids for the reissued 20-year T-bonds with a remaining life of 11 years and seven months as yields rose despite increased investor appetite.

The auction was met with P46.122 billion in bids versus the P30 billion on offer. Had the Treasury made a full award, the bonds would have fetched an average rate of 4.533%, 34.6 bps higher than the yield fetched at the June 29 auction of the papers.

For this week, FAMI and Mr. Liboro said market players are likely to remain cautious as they await more clues on the Fed’s future policy path.

FAMI said local yields could move sideways this week as market digests the Jackson Hole event, with investors anticipating firmer statements from the Fed during its September meeting.

“Subdued economic activity and dovish remarks from Fed would provide upside to US Treasury prices as well as PHP bonds. Investors would likely stay cautious for tenors facing heavy supply risk,” FAMI said.

Mr. Liboro said yield movements this week will likely depend on investor reaction to the Fed and the five-year T-bond auction on Wednesday.

“We expect the five-year bond auction to receive decent demand and be well-supported but for the trend in yields adjusting gradually higher to continue,” he said. — B.T.M. Gadon