Yield Tracker

YIELDS on government securities (GS) traded on the secondary market mostly declined last week as the latest Philippine inflation data fueled mixed bets on the Bangko Sentral ng Pilipinas’ (BSP) next policy action.

GS yields, which move opposite to prices, went down by an average of 3.32 basis points (bps) last week, based on data from PHP Bloomberg Valuation Service Reference Rates as of Jan. 10 published on the Philippine Dealing System’s website.

At the short end of the curve, the rates of the 91-, 182-, and 364-day Treasury bills (T-bills) went down by 7.75 bps (to 5.7511%), 15.31 bps (5.8199%), and 19.29 bps (5.8562%), respectively.

Meanwhile, at the belly, yields on the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) decreased by 10.37 bps (5.9620%), 7.07 bps (6.0048%), 5.53 bps (6.0372%), 4.82 bps (6.0634%), 3.25 bps (6.1093%), respectively.

At the long end of the curve, the rate of the 10-year debt paper declined by 0.82 bp to 6.1485%, while the 20- and 25-year T-bonds saw their yields increase by 19 bps (6.2882%) and 18.71 bps (6.2855%), respectively.

GS volume traded reached P34.56 billion on Friday, higher than the P31.34 billion recorded a week prior.

“Local bond yields declined amid lingering expectations of a possible BSP policy rate cut in February,” the first bond trader said in an e-mail.

However, the decline was limited for tenors at the belly amid concerns following the release of the latest consumer price index (CPI) report, the trader said.

“Despite the higher-than-expected December Philippine CPI report, bond yields generally moved lower due to strong demand for fixed-income securities from investors,” the first trader said.

A second bond trader said in a Viber message that GS yields were mostly flat as the BSP is expected to maintain its cautious stance following the inflation report, although there was pressure at the long end of the curve due to lingering uncertainties here and abroad.

Philippine headline inflation picked up to 2.9% in December from 2.5% in November, the government reported last week. This was higher than the 2.7% median estimate in a BusinessWorld poll of 13 analysts.

Still, this was slower than the 3.9% print in the same month a year prior and was within the 2.3%-3.1% forecast of the BSP.

The December rate brought the full-year 2024 inflation average to 3.2%, slower than 6% in 2023 and marking the first time since 2021 that the consumer price index settled within the BSP’s 2-4% annual target.

The Monetary Board has slashed benchmark borrowing costs by a total of 75 bps since it began its easing cycle in August, bringing its policy rate to 5.75%.

BSP Governor Eli M. Remolona, Jr. last week said the Philippine central bank still has room to continue cutting interest rates as inflation is well within its annual goal, adding that current benchmark borrowing costs remain “restrictive.”

For this week, GS yields may rise as markets await the release of US December inflation data, which could affect the Federal Reserve’s policy decision this month, the first trader said.

“A strong set of US inflation data, along with robust labor reports, could bolster views that the US Federal Reserve can afford to hold policy rates steady in their January meeting, on account of the lingering strength in the US economic performance,” the trader said.

“We are watchful on how the BSP and the market will react to the upcoming US CPI,” the second bond trader added.

December US producer and consumer price index data will come out on Jan. 14 (Tuesday) and Jan. 15 (Wednesday), respectively. — Kenneth H. Hernandez

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