Yields end mixed ahead of key US employment data


Posted on March 09, 2015

YIELDS on government debt securities ended mixed last week as investors showed appetite for short-dated papers while positioning themselves ahead of the February data US non-farm payroll (NFP) employment released Friday.

Bond yields, which move opposite to prices, were up by 4.37 basis points (bps) on the average week-on-week, according to data from the Philippine Dealing & Exchange Corp. as of March 6.

“Taking cue from the Treasury bill auction last Monday, we saw that the short end was lower mainly due to the fact that there seems to be this expectation that we’re in a rising interest rates scenario. People are playing defensive,” said Jonathan L. Ravelas, BDO Unibank, Inc.’s chief market strategist.

But as yields on most debt instruments were higher, Carlyn Therese X. Dulay, senior assistant vice-president and head of Institutional Sales at Security Bank Corp.’s Treasury Group, noted in an e-mail: “Yields increased by around 10-15 basis points across the curve on light trading [last] week as traders stayed on the sidelines ahead of [Philippine] CPI (consumer price index) and [US] NFP data. There was also increased pressure to sell with US Treasury movement and increased supply of corporate bonds.”

The Philippine Statistics Authority announced last week that the headline inflation print for February stood at 2.5%, a tad higher than the 2.4% notched in January, but still falling within the Bangko Sentral ng Pilipinas’ (BSP) 2.2-3.0% estimate for the month. The year-to-date inflation rate averaged at 2.4% -- also within the central bank’s 2-4% target for the year.

But the report on the rise consumer prices barely influenced the market last week, said a bond trader in a phone interview.

“There was slight hesitance to do anything as investors waited for the inflation data which came on Thursday, but it did not really move the market that much. Presently, we’re monitoring the non-farm payroll,” the bond trader said.

Non-farm payrolls increased 295,000 last month after rising 239,000 in January, the US Labor Department said on Friday.

Meanwhile, the unemployment rate dropped two-tenths of a percentage point to 5.5%, the lowest since May 2008, slipping into territory that some Federal Reserve officials consider consistent with full employment.

“The labor market is on a roll. This should ease fears at the Fed that the global downturn and sharp drop in oil prices are materially disrupting the US economic outlook, and keep the Fed firmly on course for a June lift-off,” said Scott Anderson, chief economist at Bank of the West in San Francisco.

Last month’s decline in the unemployment rate, however, largely reflected people dropping out of the labor force.

February marked the 12th straight month that employment gains have been above 200,000, the longest such run since 1994.

A Reuters survey of 16 large banks conducted after the jobs report found that many economists expect a June rate hike.

At the secondary market on Friday, the yield on the three-year Treasury bond (T-bond) rose the most by 58.75 basis points (bps) to 3.5125%.

It was followed by the two- and seven-year bonds, whose yields climbed by 55.72 bps and 40.60 bps, respectively, bringing rates to 3.1583% and 3.8556%.

The yields on the five-, 10- and 20-year T-bonds were also up by 3.76 bps, 15.36 bps and 9.47 bps, respectively, to 3.0366%, 4.1369% and 5.0294%.

On the other hand, yields on the 91- and 182-day Treasury bills (T-bill) respectively fell by 54.13 bps and 56.95 bps to 1.3712% and 1.6499%. The 364-day T-bill and the four-year bond also shed 5.41 bps and 23.5 bps, respectively, to 2.0750% and 2.9150%.

With the US employment data exceeding expectations of 241,000 new jobs, the trader said this will push US Treasury yields upward this week. “Local yields are tracking the US Treasury yields which are moving up due to a positive economy.”

For BDO’s Mr. Ravelas: “We will probably see a more sideways to upward bias for rates as inflation picked up. Investors are [also] slowly digesting a potential rise in interest rates, and then we’re seeing a recovery in oil prices.” -- Jochebed B. Gonzales with Reuters