Yield Tracker

YIELDS on government securities (GS) ended mixed last week after the government fully awarded reissued five-year bonds and as January inflation eased to its lowest level in 15 months.

GS yields, which move opposite to bond prices, went down by an average of 0.7 basis point (bp) on average week on week, based on PHP Bloomberg Valuation Service Reference rates as of Feb. 4 published on the Philippine Dealing System’s website.

At the short end of the curve, yields on the 91- and 364-day Treasury bills (T-bills) dropped by 0.65 bp and 0.1 bp to 0.7497% and 1.4394%, respectively, while the 182-day paper rose 5.12 bps to 1.1249%.

The belly of the curve dipped as the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) saw their yields fall by 7.98 bps, 6.17 bps, 5.26 bps, 6.04 bps, and 9.10 bps to 2.481%, 3.1592%, 3.7628%, 4.2296%, and 4.7151%, respectively.

At the long end, the rates of the 20- and 25-year notes rose by 14.91 bps (to 5.1%) and 15.51 bps (5.0931%), while the 10-year T-bond decreased by 7.95 bps to 4.8805%.

Analysts attributed last week’s yield movement to new supply of papers following the full award of reissued five-year bonds last week as well as anticipation for the January inflation print released on Friday.

“The former led yields to rise by as much as 5 bps while the latter recovered such move and more, rallying by as much as 13 bps on good demand,” Security Bank Corp. Chief Investment Officer for Trust and Management Group Noel S. Reyes said in an e-mail on Friday.

He added that the market “remains on edge” after a soft January inflation reading “as a result of rebasing to 2018 which was a high inflation year and may not affect the favorable response normally seen for such a good figure.”

“Players positioned in the four- to 10-year space amid anticipated deceleration in January’s inflation print and as US Treasuries rallied over the largest drop in ADP employment in the last two years,” First Metro Asset Management, Inc. (FAMI) said in a separate e-mail.

The Bureau of the Treasury’s (BTr) offer of reissued bonds was met with “decent” demand, FAMI said, and were awarded at an average rate of 4.089%, well within earlier indications.

The Treasury fully awarded on Wednesday the P35-billion reissued five-year papers — with a remaining life of four-years and two months — despite rising yields after the hawkish tone from the US Federal Reserve. Tenders reached P60.66 billion.

The average yield on the tenor was higher by 7.7 bps from the 4.012% quoted during the Jan. 12 offering. It was also higher than the 3.7848% for the four-year bond, the closest benchmark.

Meanwhile, the consumer price index (CPI) slowed by 3% year on year in January as housing and utilities costs eased, the Philippine Statistics Authority (PSA) reported on Friday. It was slower than the 3.2% in December and the 3.7% in January last year.

January was the fifth straight month that inflation decelerated from the 4.4% peak seen in August last year. It matched the 3% pace in November 2020 and the median estimate in a BusinessWorld poll and was the slowest print since the 2.3% in October 2020.

The 2018 rebasing brought the average inflation for 2021 to 3.9%, within the 2-4% central bank target last year. The PSA changed the base year for the CPI to 2018 starting in the January report to reflect changing household consumption patterns.

On the other hand, the yield on the US benchmark 10-year bond reached its highest level since December 2019 on strong jobs data, cementing expectations of the upcoming Fed rate hike this year, Reuters reported.

The world’s largest economy added 467,000 in January, above market expectations.

This followed the surprise 301,000 jobs decline reported by ADP private payrolls survey on Wednesday.

For FAMI, bond yields for this week would likely trade sideways as “market’s appetite for longer tenors (seven- to 10-year) will be tested in the upcoming issuances of BTr.”

“For the meantime, eyes remain focused on central bank hikes elsewhere which shall influence interest rate movement here on top of new supply also required by the government to fund expenditure,” Mr. Reyes said. “Hence, such focus will keep rallies on GS short-lived.” — M.I.U. Catilogo with Reuters