Yield Tracker

YIELDS on government securities fell last week after the Bangko Sentral ng Pilipinas (BSP) signaled it will not raise benchmark rates in the first half despite hawkish statements from the US Federal Reserve.

Debt yields, which move opposite to prices, went down by an average of 10.69 basis points (bps) week on week, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates as of Jan. 14 published on the Philippine Dealing System’s website.

At the short end of the curve, yields on 91-, 182-, and 364-day Treasury bills (T-bills) decreased by 6.35 bps (to 0.9438%), 3.77 bps (1.1246%), and 8.17 bps (1.4809%), respectively.

The belly of the curve likewise fell as rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) dropped by 28.39 bps (to 2.3173%), 26.84 bps (2.9657%), 23.89 bps (3.5654%), 19.97 bps (4.0517%), and 8.53 bps (4.6148%).

The long end closed mixed as 10-year paper inched down by 0.14 bps (to 4.8243%), while the 20- and 25-year T-bonds rose by 4.35 bps (5.0079%), and 4.07 bps (4.9952%), respectively.

A bond trader said in a Viber message that the market zeroed in on the BSP’s promise of no hikes on the first half of 2022 and “basically market ignored the hawkish Fed.”

Another bond trader said local yields dropped last week after the Bureau of the Treasury (BTr) partially awarded the reissued papers it offered despite the hawkish rhetoric of the US central bank.

“We haven’t had any full bond auction award since the RTB (retail Treasury bond) issuance in December, but there are still some funds just waiting to be invested, so the local bond market continues to benefit from the liquidity,” the second trader said in a separate Viber message.

Inflation eased to fall within the 2-4% central bank’s target in December, suggesting that the BSP may have some elbow room to keep its policy rates lower for longer, the second trader added.

BSP Governor Benjamin E. Diokno said on Tuesday that the central bank is unlikely to raise borrowing costs in the first semester of the year as it waits for the economy to recover.

Meanwhile, after investors asked for higher yields even with easing inflation, the BTr partially awarded on Tuesday its offer of reissued five-year debt with a remaining life of four years and two months.

Despite attracting P58.277 billion in bids, The Treasury raised only P22.126 billion during the exercise, lower than the P35-billion program. 

The papers were awarded at an average rate of 4.012%, higher by 25 bps when the series was last offered on Nov. 3.

Had the government made a full award, the bonds would have fetched an average rate of 4.051%.

On the other hand, the Fed decided in December to end its monthly $120-billion bond-buying program after nearly two years into the pandemic starting this March. It also signaled that it could raise its near-zero policy rate three times this year.

During his renomination hearing in US Congress on Tuesday, Fed Chair Jerome C. Powell said the US economy should weather the coronavirus disease 2019 surge brought by the Omicron variant and was ready for the start of interest rate hikes as its December inflation accelerated to its fastest pace since 1982, Reuters reported.

For this week, both bond traders expect the yield curve to continue its downward slope, with the first saying maturities for the next two weeks will probably support government securities.

“Expect lower yields as bond maturities for the next two weeks will probably support government securities,” the first trader said.

The second trader said yields, especially the front end of the curve, will trend sideways with downward bias due to reinvestment requirements ahead of the bond maturities this month.

“Aside from that, the market will look to the results of the new 10-year FXTN (fixed rate Treasury notes) issuance for justified directional cues,” the second trader said.

The Treasury will offer fresh 10-year papers worth P35 billion on Tuesday. — B.T.M. Gadon