Debt yields mixed before key US data

YIELDS on government securities (GS) traded at the secondary market ended mixed last week as the market looked ahead to the US consumer price index (CPI) data released late on Friday.

GS yields, which move opposite to prices, slipped by an average of 0.22 basis point (bp) week on week, based on the PHP Bloomberg Valuation Service Reference Rates as of Oct. 24 published on the Philippine Dealing System’s website.

At the short end of the curve, yields on the 91-, 182-, and 364-day Treasury bills (T-bills) went down by 4.45 bps (to 4.9263%), 4.03 bps (5.0977%), and 4.05 bps (5.1626%), respectively.

Meanwhile, at the belly, rates mostly went up. Yields on the four-, five-, and seven-year Treasury bonds (T-bonds) rose by 0.64 bp (5.6143%), 1.19 bps (5.7002%), and 1.81 bps (5.8252%), respectively. On the other hand, the two- and three-year papers saw their rates go down by 0.82 bp to 5.4075% and 0.12 bp to 5.5142%, respectively.

Lastly, at the long end of the curve, the 10-, 20-, and 25-year notes climbed by 2.65 bps, 2.12 bps and 2.63 bps to yield 5.9794%, 6.4278% and 6.4258%, respectively.

GS volume traded declined to P28.52 billion on Friday from P50.28 billion a week prior.

Yield movements were mixed as the market continued taking positions amid domestic and overseas developments, analysts said.

“The short end continues to reflect recent rate cuts, while the belly to the long end succumbed to profit taking,” a bond trader said in a Viber message.

The trader said players remained cautious before the release of key US inflation data on Friday evening as these could impact the Federal Reserve’s policy decision at its Oct. 28-29 meeting.

“Flush liquidity conditions and limited bond supply continued to support the front end, keeping yields anchored as investors are still positioning ahead of potential monetary policy easing amid emerging growth concerns,” Lodevico M. Ulpo, Jr., vice-president and head of fixed income strategies at ATRAM Trust Corp., said in a Viber message.

“In contrast, the uptick in the belly and long end reflected a more defensive stance consistent with movements in global bond markets, as participants priced in expectations of increased domestic bond supply on the belly to long end in the coming weeks and adjusted duration exposure accordingly.”

The Bangko Sentral ng Pilipinas (BSP) this month trimmed benchmark interest rates by 25 bps for a fourth consecutive meeting, bringing the policy rate to an over three-year low of 4.75%. It has now slashed borrowing costs by a cumulative 175 bps since it began its rate cut cycle in August 2024.

BSP Governor Eli M. Remolona, Jr. has left the door open to more reductions in the coming months to support the economy amid weakening prospects as governance concerns due to a graft scandal involving state infrastructure projects have affected investor sentiment.

The Monetary Board will next meet to discuss policy on Dec. 11.

Meanwhile, US consumer prices increased slightly less than expected in September as a surge in the cost of gasoline was partially offset by a sharp moderation in rents, keeping the Federal Reserve on track to cut interest rates again this week, Reuters reported.

The report was published despite an economic data blackout caused by the US government shutdown in order to help the Social Security Administration calculate its 2026 cost-of-living adjustment for millions of retirees and other benefits recipients, who will get a 2.8% increase.

It was initially due on Oct. 15 and the White House warned October’s inflation report might not be published for the first time ever because the shutdown had halted data collection.

The consumer price index rose 0.3% last month after climbing 0.4% in August, the Labor Department’s Bureau of Labor Statistics (BLS) said. The BLS said CPI data collection was completed before the shutdown. Still, the statistical agency used imputations to fill in missing information, with the share rising to 40% from 36% in August. A 4.1% jump in the price of gasoline was the main driver of the rise in the CPI.

In the 12 months through September, the CPI increased 3.0% after advancing 2.9% in August. Economists polled by Reuters had forecast a monthly increase in the CPI of 0.4% and a 3.1% rise on a year-over-year basis.

Excluding the volatile food and energy components, the CPI gained 0.2% after rising 0.3% in August. Slowing rent inflation accounted for the moderation in the so-called core CPI.

The Fed tracks the personal consumption expenditures (PCE) price indexes for its 2% inflation target. Based on the CPI data, economists estimated core PCE inflation rose 0.2% in September, translating to a 2.9% year-on-year gain.

The ongoing shutdown will, however, delay the release of that data. The second-longest shutdown in history is raising worries over the quality of future inflation reports, given the suspension of collection efforts.

Mr. Ulpo added that trading sentiment was “subdued” last week, as reflected in the results of the Bureau of the Treasury’s bond auction.

“The seven-year T-bond was awarded broadly in line with market expectations, while the 25-year tranche cleared roughly 10 bps above secondary market levels, underscoring the cautious stance of investors amid a lack of strong conviction,” he said. “Average daily traded volume declined sharply to P35 billion from P75 billion in the prior week, as market participants opted to stay on the sidelines ahead of major global data releases.”

“Externally, global macro uncertainty continued to weigh on local sentiment. The ongoing US government shutdown has delayed the release of key economic indicators, introducing an additional layer of uncertainty for investors. This information gap complicates the US Federal Reserve’s policy calibration. The resulting volatility and cautious global tone have spilled over into the local fixed-income space, further dampening risk appetite.”

For this week, the US inflation report released over the weekend could affect GS yield movements, both analysts said.

“Market direction will hinge on that report, but the bias remains for yields to trend lower given the absence of new supply and lingering growth concerns,” the trader said.

“We expect the local bond market to remain muted, with limited directional bias as investors await clearer catalysts. Domestic factors are likely to stay muted, and attention will turn to key US data releases,” Mr. Ulpo added.

He said the softer-than-expected September US consumer inflation print “could reinforce expectations of a more dovish Fed stance, providing support for global bond markets and possibly prompting renewed buying interest locally.” — Heather Caitlin P. Mañago with Reuters