Yields on gov’t debt fall on dovish tone from Fed


Posted on May 25, 2015

YIELDS on government debt papers fell last week as the dovish tone culled from the minutes of the Federal Open Market Committee’s (FOMC) April meeting spurred appetite at the secondary market.

Bond prices soared as yields declined 28.42 basis points (bps) on the average week on week, data from the Philippine Dealing & Exchange Corp. as of May 22 showed.

“The signal from the Federal Reserve that a June rate hike is very unlikely emboldened players to churn the belly to long-end,” said David Ignacio C. Estacio, vice-president and head of local markets and debt securities trading at First Metro Investment Corp.

It was also the same for BDO Unibank Inc.’s Chief Market Strategist Jonathan L. Ravelas, who said: “BSP’s (Bangko Sentral ng Pilipinas) monetary policy was unchanged and the Fed also said [that it seems] there will be no hike in June, so rates eventually were much lower [last week].”

Local yields tracked US Treasury yields which fell after the release of the minutes of the FOMC’s April meeting, according to a bond trader, although he noted that “much of last week was just range trading.”

The summary of the Fed’s April 29-30 policy meeting suggested that a rate hike may not happen by midyear with only a “few” expecting “sufficient improvement in the economic outlook” coming June.

“Many participants, however, thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, although they generally did not rule out this possibility,” the minutes stated.

At the secondary market on Friday, the yield of the three-year Treasury bond (T-bond) saw the steepest drop as it fell 81.94 bps to 2.8573% week on week. It was followed by the two-year bond and the 364-day Treasury bill (T-bill), which respectively declined 79.11 bps and 78.37 bps to fetch 2.7622% and 2.4428%.

Seeing demand as well were the 91-day T-bill, and the four-, 10- and 20-year T-bonds, whose yields decreased 62 bps, 46 bps, 0.67 bps and 33.45 bps to give 2.0668%, 3.3383%, 4.3750% and 4.4300%, respectively.

Meanwhile, the yields of the five- and seven-year T-bonds shot up by 71.9 bps and 20.03 bps to 3.9217% and 3.8388%. The 182-day T-bill also gained 5.42 bps, yielding 2.8792%.

Sought for his outlook this week, BDO Unibank’s Mr. Ravelas said: “We’re expecting rates to move sideways to up depending on what happens on GDP (gross domestic product).”

The bond trader, for his part said, “GDP may spur a knee-jerk action but we’re still expecting range trading with minimal profit-taking.”

The Philippine Statistics Authority is scheduled to release first quarter GDP data on Thursday, May 28.

A BusinessWorld poll of analysts showed that economic expansion likely eased in the first quarter on weak exports and slower remittance growth despite steady household consumption and increased government spending,

The survey of twelve analysts turned up a median forecast of GDP growth of 6.55% in the first quarter. The economy expanded by 5.6% in the first three months of 2014 and by 6.9% -- a five-quarter high -- in October-December that same year. -- Jochebed B. Gonzales