Yields on government debt end higher

YIELDS on government securities (GS) mostly rose last week in a healthy correction from overbought conditions and amid market anticipation for fresh debt issuances and the US Federal Reserve’s next policy move.

GS yields, which move opposite to prices, went up by an average of 4.78 basis points (bps) week on week, according to PHP Bloomberg Valuation Service Reference Rates data as of Jan. 12 published on the Philippine Dealing System’s website.

Rates at the short end of the curve rose across the board. The 91-, 182-, and 364-day Treasury bills (T-bills) climbed by 11.05 bps (to 5.337%), 8.72 bps (5.5956%), and 14.6 bps (5.9734%), respectively.

At the belly, the three-, four-, five-, and seven-year Treasury bonds (T-bonds) rose by 2.78 bps (to 5.9679%), 4.63 bps (6.0237%), 5.68 bps (6.0756%), and 8.47 bps (6.1662%), respectively. Meanwhile, the two-year bond fell by 0.09 bp to 5.9069%.

Yields at the long end were mixed. The rate of the 10-year debt paper rose by 11.97 bps to 6.2393%, while yields on the 20-, and 25-year T-bonds fell by 7.43 bps (to 6.2464%) and 7.82 bps (6.2495%), respectively. 

Total GS volume traded rose to P16.5 billion on Friday from P15.05 billion the week prior.

“Over the past weeks, we’ve observed a pronounced upward shift in yields, primarily driven by a market correction from previously overbought curve brought by the aggressive yield declines we saw last month,” Lodevico M. Ulpo, Jr., vice-president and head of Fixed Income Strategies at ATRAM Trust Corp., said in an e-mail.

The Fed’s previous indications of rate cuts this year pushed the market to overbought territory, he said.

“The recent auction of the five-year bonds, which was fully awarded at P30 billion and witnessed a robust demand (approximately 2.5 times oversubscribed), significantly influenced [last] week’s rates. The market’s response, especially considering the uncertainties surrounding the US consumer price index (CPI) and continuous new bond series issuance, continued to be firm with sporadic selling to reflect expectations on market pricing in the primary market,” Mr. Ulpo added.

Last week, the Bureau of the Treasury (BTr) raised P30 billion as planned from its offer of new five-year bonds as total bids reached P74.329 billion, more than twice as much as the program. 

The bonds were awarded at a coupon rate of 6.125%. Accepted yields ranged from 5.86% to 6.125% for an average rate of 6.073%.

Meanwhile, US consumer prices increased more than expected in December, with Americans paying more for shelter and healthcare, suggesting it was probably too early for the Federal Reserve to start cutting interest rates, Reuters reported.

The consumer price index (CPI) rose 0.3% last month after nudging up 0.1% in November, the Labor department’s Bureau of Labor Statistics said.

In the 12 months through December, US CPI rose 3.4% after increasing 3.1% in November. Economists polled by Reuters had forecast the CPI would gain 0.2% on the month and climb 3.2% on a year-on-year basis.

Inflation averaged 4.1% in 2023, down from 8% in 2022.

Financial markets still see more than a 60% chance of a rate cut at the Fed’s March 19-20 policy meeting, according to CME Group’s FedWatch Tool. The Fed has hiked its policy rate by 525 basis points to the current 5.25%-5.5% range since March 2022.

“Yields took their cue largely from global bond market developments with sentiment influenced by expectations on the timing of the Fed rate cuts. There may have been investors sitting on the sidelines ahead of the US inflation report,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa added in an e-mail.

For this week, the market will monitor policy statements from newly appointed Finance Secretary Ralph G. Recto, Mr. Mapa said.

“Looking ahead to [this] week, we anticipate a surge in demand for the seven-year bonds, as investors begin to seek longer durations, aiming to lock in yields in anticipation of the January inflation figures,” Mr. Ulpo added.

“Additionally, the local market’s movements are likely to align closely with global yield trends, which are expected to mirror evolving monetary policy directions and expectations in the forthcoming months. This alignment will play a pivotal role in shaping market positioning and yield dynamics in the short term,” he said.

The BTr will offer P30 billion in fresh seven-year T-bonds on Tuesday. — A.C. Abestano with Reuters