Yield Tracker

YIELDS on government securities (GS) fell last week amid the US Federal Reserve’s and Bangko Sentral ng Pilipinas’ hawkish stance and the result of the 10-year bond auction.

GS yields at the secondary market went down by an average of 3.54 basis points (bps) week on week, according to the PHP Bloomberg Valuation Service Reference Rates as of Sept. 22 published on the Philippine Dealing System’s website.

At the short end of the curve, the 91-, 182-, and 364-day Treasury bills (T-bills) fell by 1.23 bps (to 5.6102%), 1.97 bps (5.9444%), and 6.76 bps (6.0960%), respectively.

At the belly, rates ended mixed as the five- and seven-year Treasury bonds (T-bonds) rose by 0.59 bp and 1.29 bps to fetch 6.2625% and 6.3569, respectively. Meanwhile, two-, three-, and four-year T-bonds also went down by 2.82 bps (to 6.1816%), 1.59 bps (6.2072%), and 0.42 bp (6.2300%), respectively.

At the long end, yields on the 20- and 25-year papers dropped by 14.07 bps and 15.11 bps week on week to yield 6.4870% and 6.4810%, respectively. The 10-year debt, however, inched up by 3.1 bps to fetch 6.4750%.

Total GS volume reached P20.27 billion on Friday, higher than the P13.99 billion on Sept. 15.

Analysts attributed the movement of the local bond market mainly to the US Fed’s firm hawkish stance last week and the 10-year bond auction.

“The Fed’s hawkish statement, projecting one more rate hike this year and less rate cuts next brought US treasuries to multi-year high, driving up yields of domestic securities also,” China Banking Corp. Chief Economist Domini S. Velasquez said in an e-mail.

The US central bank kept its interest rates steady at 5.25-5.5% at its meeting on Wednesday but showed that higher interest rates may continue until next year.

In a Reuters report, bond yields surged to 16-year highs after the Fed’s monetary meeting. The benchmark 10-year and two-year notes hit 4.4% and 5.2%, respectively, the highest since 2006.

“We want to see convincing evidence really, that we have reached the appropriate level of interest rates to return inflation to the Fed’s 2% target, a judgment its policy makers have not yet made,” US Fed Chair Jerome H. Powell said in a report.

The Bureau of the Treasury (BTr) fully awarded the reissued 10-year bonds it offered last week as market investors expected a pause hike from the Bangko Sentral ng Pilipinas.

The BTr raised P30 billion through its 10-year bonds offer on Monday, more than twice the amount offered as the total bids reached P66.719 billion.

The reissued bonds, which have a remaining life of nine years and 11 months, were awarded at an average rate of 6.42%, 13.8 bps lower than the 6.558% quoted for the paper when it was last offered on Aug. 15, and 20.5 bps below its 6.625% coupon.

Ms. Velasquez projected the 10-year bonds to increase by more than 6% for this year.

Meanwhile, ATRAM Trust Corp. Head of Fixed Income Strategies Lodevico M. Ulpo, Jr. said that the local bond markets should look out for investors’ actions towards global rates and the BSP’s hawkish position into the pricing of the three-year bonds and longer tenor bonds. 

“Potential yield curve shape will also be dictated by the overall persistence of demand on the longer-end part of the curve as well as the upcoming monthly bond auction schedule anticipated to be released [this week],” Mr. Ulpo said in an e-mail.

Meanwhile, Ms. Velasquez said the BSP’s recent statement on a possible rate hike in November would keep interest rates elevated for the rest of the year.

The BSP also kept its key rates steady at its fourth straight meeting last week as the target reverse repurchase rate was maintained at 6.25%. Interest rates on the overnight deposit and lending facilities remained at 5.75% and 6.75%, respectively.

“Looking ahead, the BSP stands ready to resume its tightening actions in the face of upside risks and potential second-round effects that could dislodge inflation expectations,” BSP Governor Eli M. Remolona, Jr. said in a press briefing. — Mariedel Irish U. Catilogo