Yield Tracker

YIELDS on government securities (GS) ended mostly lower last week amid easing inflation concerns following the ceasefire between Iran and Israel, although markets remained watchful of developments in the absence of a long-term deal.

GS yields, which move opposite to prices, declined by an average of 2.95 basis points (bps) week on week, based on the PHP Bloomberg Valuation Service Reference Rates as of June 27 published on the Philippine Dealing System’s website

At the short end, rates went up across all tenors, with the 91-, 182-, and 364-day Treasury bills (T‑bills) rising by 0.80 bp (to 5.4794%), 2.07 bps (5.642%), and 1.13 bps (5.6955%), respectively.

In contrast, yields at the belly declined. The rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) fell by 1.86 bps (to 5.7189%), 3.78 bps (to 5.788%), 5.29 bps (5.857%), 6.47 bps (5.9341%) and 8.16 bps (6.1041%), respectively.

At the long end, yields on the 10-, 20-, and 25-year T‑bonds also went down by 9.31 bps (to 6.32%), 0.66 bp (6.6412%), and 0.89 bp (6.638%), respectively.

GS volume traded amounted to P40.47 billion on Friday, higher than the P27.93 billion recorded a week prior.

Local yields ended lower last week as inflation fears subsided amid the decline in global oil prices after Iran and Israel agreed to a ceasefire, a bond trader said in an e-mail.

“The Iran-Israel ceasefire helped ease geopolitical tensions and triggered a pullback in oil prices, which had nearly reached year-to-date highs. This decline alleviated global inflation concerns, boosting investor sentiment. In the local bond market, this served as a catalyst for bargain-hunting, particularly on the long end of the curve, where yields had spiked at the start of the month. With inflation risks subsiding, attention shifted to supportive domestic fundamentals, prompting selective buying,” ATRAM Trust Corp. Vice-President and Head of Fixed Income Strategies Lodevico M. Ulpo, Jr. said in a Viber message.

A ceasefire to the 12-day Israel-Iran conflict went into effect early last week, Reuters reported. Israel launched the air war on June 13, attacking Iranian nuclear facilities and killing top military commanders as well as civilians in the worst blow to the Islamic Republic since the 1980s war with Iraq.

Iran retaliated with barrages of missiles on Israeli military sites, infrastructure and cities. The United States entered the war on June 22 with strikes on Iranian nuclear facilities.

On Friday, oil prices rose but were set for their steepest weekly decline since March 2023, as the absence of significant supply disruption from the Iran-Israel conflict saw any risk premium evaporate.

Brent crude futures settled up 0.1% to $67.77 a barrel while US West Texas Intermediate crude was up by 0.4% to $65.52.

However, the decline in GS yields was capped by supply concerns, Mr. Ulpo said.

“Despite the BSP’s (Bangko Sentral ng Pilipinas) rate cut, the local bond market struggled to perform due to persistent domestic bond supply concerns. The looming bond issuance pipeline continues to exert upward pressure on long-end yields. Recent auctions have reflected tepid demand, resulting in higher yields and a steeper yield curve, offsetting any dovish signals from the BSP. As a result, the GS 10-year benchmark touched new year-to-date highs before bargain hunters entered to cause yields to pull back,” he said.

This was reflected in the mixed results of last week’s dual-tranche bond auction, Mr. Ulpo noted.

“The stark contrast in demand between the three-year and 25-year tenors highlights a defensive investor stance. The poor reception for the 25-year bond was in line with the market’s aversion to duration risk amid a steepening curve. Conversely, strong demand for the three-year reflects a preference for shorter tenors ahead of a fresh borrowing schedule for July,” he said.

“Due to various economic headwinds, both locally and domestically, investors have cautiously dodged away from longer-term issuances,” the bond trader added.

On Wednesday, the Bureau of the Treasury (BTr) made a partial award of the dual-tenor reissued T-bonds, raising only P35.076 billion, lower than the P40-billion plan, even as total bids reached P63.286 billion or above the amount placed on the auction block. This came as it chose to reject some bids for the reissued 25-year papers to cap the rise in yields.

For this week, the market’s focus will be on the release of June Philippine inflation data on July 4 (Friday) as well as US labor reports, the bond trader said.

“Both of these data are expected to influence the policy rate paths of the BSP and the Federal Reserve, respectively,” the trader said.

Aside from the inflation report, market players will also monitor this week’s T-bond auction, Mr. Ulpo said, with the issue expected to fetch rates from 5.85–5.95%. On Tuesday, the BTr will auction off P30 billion in reissued seven-year bonds with a remaining life of five years and 25 days.

“These events will offer clearer direction for short-term rate expectations and risk sentiment. Once these data points are digested, market participants may reevaluate their positioning across the curve,” he added. — Pierce Oel A. Montalvo with Reuters

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