Debt yields rise as mart bets on BSP tightening

By Heather Caitlin P. Mañago, Researcher

YIELDS on government securities (GS) traded at the secondary market closed mostly higher last week as investors priced in a potential rate hike from the Bangko Sentral ng Pilipinas (BSP) amid growing inflation concerns due to elevated global oil prices.

GS yields, which move opposite to prices, rose by an average of 2.62 basis points (bps) week on week, based on the PHP Bloomberg Valuation Service Reference Rates as of March 27 published on the Philippine Dealing System’s website.

At the short end, yields ended higher across all tenors, with the 91-, 182-, and 364-day Treasury bills (T-bills) rising by 0.41 bp, 11.14 bps, and 10.19 bps week on week to fetch 4.9854%, 5.0695%, and 5.1905%, respectively.

At the belly, rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) likewise went up by 1.14 bps (to 6.0153%), 6.17 bps (6.3277%), 8.9 bps (6.5457%), 11.68 bps (6.7081%), and 16.18 bps (6.9147%), respectively.

Meanwhile, the long end was mixed. Yields on the 20- and 25-year debt dropped by 24.04 bps to 7.0028% and 24.14 bps to 7.0041%, respectively, while the rate of the 10-year tenor rose by 11.22 bps to 7.0194%.

GS volume traded increased to P73.59 billion on Friday from P28.07 billion a week prior.

“Local yields continue to move higher as market participants slowly price in the possibility of a BSP rate hike following signals from Finance Secretary Go,” a bond trader said in an e-mail.

The trader added that while the BSP held rates steady during its off-cycle meeting on Thursday, the central bank’s decision to rule out a rate cut for its regular April meeting “only confirmed hawkish movements in domestic interest rates.”

“The lingering elevated levels of global crude oil prices continued to push yields higher amid growing upside risk to domestic inflation,” the trader said.

In a March 17 interview with Bloomberg TV, Finance Secretary Frederick D. Go said that “if the price of oil continues to persist at elevated levels, it is most likely that the Monetary Board will consider tightening in the next meeting.”

The BSP last hiked rates in October 2023.

The Monetary Board will hold its next regular rate-setting meeting on April 23. Last Thursday, the Monetary Board kept its policy rate unchanged at 4.25% during a surprise off-cycle review.

BSP Governor Eli M. Remolona, Jr. said they decided to stand pat as their growth outlook remains clouded and as emerging inflationary risks prove supply-driven, “for which monetary policy has limited effectiveness.”

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said that “the local fixed income market remains driven largely by global risk sentiment and oil-led inflation concerns rather than domestic policy signals.”

“While the BSP’s off-cycle meeting helped anchor near-term expectations by keeping rates unchanged, it did not reverse the broader repricing across the curve, which has been shaped by heightened geopolitical risks and elevated oil prices,” he said.

“Although easing Middle East hostilities and softer oil prices triggered pockets of bargain hunting, these were largely liquidity-driven rallies. The market continues to price in the risk of a short BSP tightening cycle, keeping the front end vulnerable, while the long end remains exposed to supply and fiscal risks — particularly amid discussions around suspending petroleum excise taxes.”

The trader said the GS market could move sideways in the coming days amid a shortened trading week.

“Market participants might remain cautious on fluctuating developments over the reported informal talks between the US and Iran,” the trader said.

“Overall, traders are expected to sell into strength, with GS yields likely to remain volatile and range-bound as investors monitor inflation data, oil price developments, and evolving signals from both the BSP and global central banks,” Mr. Asuncion added.