YIELD TRACKER: Gov’t debt yields rally anew amid steady BSP policy rates

Posted on November 14, 2011

DEBT YIELDS again rallied almost across the board last Friday from month-ago levels, driven by ample liquidity and expectations that the Bangko Sentral ng Pilipinas (BSP) would continue to keep policy rates steady to spur economic growth.

Yields on government securities dropped by an average 48.42 basis points (bps) month-on-month, data from the Philippine Dealing & Exchange Corp. (PDEx) showed.

Treasury bills (T-bills) rallied the most, with the benchmark 91-day T-bill falling by a hefty 178.50 bps to 0.87% from 2.65% a month ago.

The six-month and one-year papers yielded 1.04% and 1.18%, down by 143.50 bps and 132.50 bps from 2.48% and 2.50%, respectively.

Bonds maturing in two, three, four, and five years similarly rallied, led by the three-year paper, whose yield went down by 34.87 bps month-on-month to 3.45%.

The seven-year Treasury bond, on the other hand, went up by 2.50 bps to 5.02% from 5.00% a month earlier.

Deanno J. Basas, ATR KimEng Asset Management investment director for fixed income, said the market was confident of the central bank’s monetary policy stance.

“Yields have been moving down as investors are getting convinced that the BSP will keep rates steady in the short and medium term given that inflation remains tame and growth is slow relative to target,” he said.

“Aside from that, ample liquidity in the system should continue to support yields,” Mr. Basas added.

Marcelo E. Ayes, senior vice-president at Rizal Commercial Banking Corp., agreed, saying: “The general outlook is pointing to a low and stable interest rates and technicals are showing that there is still room for rates to go down.”

“With a benign inflation outlook and slow growth, lower rates are needed to encourage economic activity,” he added.

Last month, the BSP kept its overnight borrowing and lending rates steady at 4.5% and 6.5%, respectively, noting the need to support economic growth amid global uncertainties.

On a weekly basis, yields went down by 2.61 bps on the average, with all issues rallying except for marginal increases in the five-, and seven-year bonds.

Analysts expect yields to remain steady or range trade this week.

“For this week, yields will be relatively tight. There will either range trading of around 10 to 15 bps or [yields] will remain steady at current levels since rates are already low,” Mr. Basas said.

Mr. Ayes said: “I think yields will move sideways with a downward bias, though the movement will be narrow, around 1 to 10 bps, since the current rates are too low.”