Yields on government debt mixed as market takes defensive stance
YIELDS on government securities (GS) ended mixed last week as the market took a defensive stance ahead of the release of March inflation data and shortened trading due to the Holy Week.
GS yields, which move opposite to prices, inched up by an average of 0.46 basis point (bp) at the secondary market week on week, according to the PHP Bloomberg Valuation Service Reference Rates as of March 31, published on the Philippine Dealing System’s website.
Yields at the short end of the curve rose as the 91-, 182-, and 364-day Treasury bills (T-bills) increased by 8.35 bps, 11.84 bps, and 8.90 bps to fetch 5.0501%, 5.6771%, and 6.0287%, respectively.
On the other hand, rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) fell by 1.36 bps (to 5.8489%), 1.33 bps (5.8812%), 3.19 bps (5.9186%), 4.94 bps (5.9680%), and 3.11 bps (6.0940%), respectively.
At the long end, yields were mixed as the 10-year paper went up by 2.77 bps (to 6.2155%), while the 20- and 25-year papers decreased by 6.05 bps and 6.87 bps to 6.5556% and 6.5631%, respectively.
Total GS volume for last week of March reached P20.14 billion on Friday, higher than the P14.34 billion recorded on March 24.
Bond traders attributed last week’s yield movements to investors’ defensive stance as they await the upcoming inflation report and in view of the shortened trading week, resulting in “stable” rates.
“Of particular significance to the market’s sentiment is the forthcoming Philippine CPI (consumer price index) report for March, as it is expected to impact the Monetary Board’s decision making come May. This event is keenly awaited by market participants,” a bond trader said in an e-mail.
The trader said they expect inflation to have eased to around 8% last month.
The Philippine Statistics Authority will release March inflation data on April 5, Wednesday.
A BusinessWorld poll of 16 analysts yielded a median estimate of 8.1% for March headline inflation, closer to the upper end of the 7.4% to 8.2% forecast given by the Bangko Sentral ng Pilipinas (BSP) last week.
If realized, this will be slower than the 8.6% in February, but faster than the 4% print in March 2022.
March would be the 13th straight month that inflation surpassed the BSP’s 2-4% target for the year.
The BSP last month increased borrowing costs by 25 bps as inflation remains elevated, bringing its key rate to 6.25%.
Since May 2022, the central bank has raised rates by a total of 425 bps.
BSP Governor Felipe M. Medalla said in a Bloomberg interview last week that it may be too early for the central bank to pause from raising interest rates at its next policy meeting on May 18.
A second bond trader said in a Viber message that while they also expect headline inflation to have eased last month, the core print could be more significant as it would indicate how quickly inflation can go back within the central bank’s target.
Core inflation, which discounted volatile prices of food and energy items, was at 7.8% in February, the highest since 7.2% in November 2008.
For the week, the traders said the short trading week could cause investors stay on the sidelines and yields to move sideways.
“With the Holy Week prompting a curtailed trading week, investors are likely to remain reticent and adopt a cautious approach. Therefore, the local bond market is anticipated to maintain its status quo, trading within a narrow range and possibly favoring a slight downward bias on yields, subject to the inflation announcement,” the first trader said.
“Most players are on the sidelines ahead of CPI data and the short trading week. It looks like market will take cues from events abroad. We see a cautious tone for now since players are still wary of the recent banking turmoil,” the second trader added.
The second trader said liquidity could support demand for government securities, but “yields are low relative to the policy rate and against inflation.” — B.T.M. Gadon
