Yield Tracker

YIELDS on government securities (GS) were mixed last week as investors recalibrated their positions following the government’s rejection of bids for its offer of three-year bonds.

GS yields in the secondary market fell by a week-on-week average of 7.38 basis points (bps), based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates as of March 4 published on the Philippine Dealing System’s website.

Yields, which move opposite to prices, were mixed on Friday from their Feb. 24 close. Rates of the short-dated 91-, 182-, 364-day Treasury bills (T-bills) went up by 19.62 bps, 8.54 bps, 4.9 bps to 1.1685%, 1.2493%, and 1.5943%, respectively.

At the belly of the curve, yields on the three-, four-, five-, and seven-year Treasury bonds (T-bonds) decreased by 7.13 bps, 16.36 bps, 20.07 bps and 12 bps to 3.6822%, 4.1968%, 4.6157% and 5.1329%, respectively.

On the other hand, the rate of the two-year papers increased by 3.89 bps to 3.0955%.

At the long end, rates of the 10-, 20-, and 25-year bonds dropped by 11.22 bps (to 5.3%), 24.42 bps (5.4496%) and 26.88 bps (5.4304%), respectively.

A bond trader said yields were lower after the Treasury rejected the offers for its three-year debt last week.

“The three- to four-year space were lower [last week] as investors tried to reinstate their position originally intended for the three-year [bond] auction,” the trader said in a Viber message.

Two-year papers and below were sold off last week in favor of the three-year debt and longer for yield pickup, the bond trader said.

“Following BTr’s rejection of their three-year auction, market turned better buyer especially in the three- to four-year space,” First Metro Asset Management, Inc. (FAMI) said in an e-mail interview.

“We also noticed bidding interest up to the seven-year space ahead of the scheduled auction this week and February inflation print release where consensus estimates stood at 3.2%,” FAMI said.

On Tuesday, the Treasury rejected all bids for its offer of fresh three-year T-bonds even as demand reached P45.26 billion, 29.3% higher than the P35 billion on the auction block, as traders asked for higher yields amid the ongoing crisis between Russia and Ukraine.

Had the offer been fully awarded, the three-year papers (FXTN 03-26) would have fetched a coupon rate of 4.375%, above the 3.7984% quoted for the notes before the auction.

Meanwhile, inflation stood at 3% year on year in February, the Philippine Statistics Authority reported on Friday. This matched the January print but was slower than 4.2% in February last year.

This was also lower than the 3.3% median estimate in a BusinessWorld poll but within the 2.8-3.6% forecast range by the Bangko Sentral ng Pilipinas.

For this week, the bond trader expects players to be on edge due to the inflation impact of the ongoing war between Russia and Ukraine.

“It is also a week away from FOMC (Federal Open Market Committee) where US Fed’s [Jerome H.] Powell already saying that he will propose 25-bp hike and could also be more especially if next week’s US CPI (consumer price index) data will show higher-than-expected print,” the bond trader said.

Mr. Powell last week said they will be slowly raising interest rates to balance high US inflation, Reuters reported.

However, the Fed’s plan of raising the target overnight federal funds rate and lower the size of its balance sheet to control inflation remain. The next scheduled Fed meeting is on March 15 to 16.

For FAMI, it sees yields moving with an upward bias this week amid debt supply pressures following the recent retail Treasury bond (RTB) issuance as well as the surging oil prices that could cause domestic inflation to spike.

“Moreover, the easing of mobility restrictions starting this month may lead to faster economic recovery and soon suggest tighter monetary policy,” FAMI said.

BDO Unibank, Inc. Chief Market Strategist Jonathan L. Ravelas said in a Viber message that he continues to expect yields to move sideways in the near term. — Ana Olivia A. Tirona with Reuters