Yields on gov’t debt mixed as markets eye US, Europe
By Jochebed B. Gonzales,
Researcher
YIELDS on government securities (GS) ended mixed last week as market players remained watchful of the geopolitical tensions between the US and North Korea while digesting better-than-expected Philippine economic data.
Local debt yields, which move opposite to prices, dipped by 1.79 basis points (bps) on average week on week, data from the Philippine Dealing & Exchange Corp. as of Aug. 18 showed.
“Yields traded within an average range of five basis points across the board this week with initial lifting of offers at Monday open, but [saw] an eventual reversal on increased geopolitical risk,” said Carlyn Therese X. Dulay, head of institutional sales at Security Bank Corp.
Helen G. Oleta, trust trading head at Rizal Commercial Banking Corp. (RCBC), agreed, saying: “We’ve seen a number of geopolitical issues, another scare like the Barcelona attack [in Spain], but our movement is just five bps. It’s more of a ‘risk off mode’ on part of the market as well.”
Tensions heightened between the US and North Korea early this month with the latter threatening to launch missiles in the Pacific island of Guam, a US territory. US President Donald J. Trump, in response, said North Korea “will be met with fire and fury” should threats from Pyongyang continue.
Ms. Oleta said that while domestic bonds normally track US Treasuries, their yields were not much correlated last week.
“The 10-basis-point movement of US treasuries (UST) is just five bps in local GS yields,” she pointed out.
The 10-year UST jumped by 5.43 bps to close at 2.2728% on Tuesday after US Census Bureau reported that retail sales growth in the US accelerated to a seven-month high, up by 0.6% month-on-month in July, beating market expectations of 0.4%. However, at Friday’s closing, the yield on the 10-year benchmark bond retreated back to the 2.19% it had in the previous week.
On the domestic front, growth of the economy slightly beat market expectations, with gross domestic product (GDP) rising by 6.5% year-on-year on the back of strong private consumption and increased government spending during the second quarter.
“Philippine GDP printed at 6.5% on Thursday, slightly better than the 6.4% market consensus. Buying interest ensued but was halted as profit takers began to hit the better bids in the afternoon session,” said Security Bank’s Ms. Dulay.
RCBC’s Ms. Oleta said that selling on the part of the bond holders reflect cautious sentiment in the market despite ‘good’ GDP number and overseas Filipino worker (OFW) remittances, which grew by 5.7% year-on-year to $2.467 billion.
At the secondary market on Friday, demand was seen on the short-end led by the 182-day Treasury bill (T-bill) whose yield fell 43.66 bps to 2.5666%.
Yields on the 91-day and 364-day T-bills decreased 1.71 bps and 9.53 bps, respectively, to finish with 2.1782% and 2.9768%.
Other securities that saw their yields drop were the four-, five- and 20-year Treasury bonds (T-bond), which respectively shed 1.84 bps, 14.79 bps and 0.79 bp, to close at 4.1995%, 4.57% and 5.435%.
Offsetting the declines were the rise in the yields on the two- and 10-year bonds by 15.71 bps and 35.66 bps, respectively, to with 3.7982% and 4.9918%.
The rates of the three- and seven-year bonds rose by a marginal 0.25 bp and 2.84 bps, respectively, to 3.8363% and 4.4883%.
Sought for her outlook this week, RCBC’s Ms. Oleta said: “I think we’ll see a three to five basis point move, up and down, for the local GS. But for the US Treasuries, we might see rates go back again to 2.23% from the current 2.19%.”
For Security Bank’s Ms. Dulay: “Expect yields to continue to track UST movement [this] week and for the market to trade range-bound as traders wait for results of the 10-year reissuance of FXTN (fixed rate Treasury note) 10-61, which is expected to print between 4.65% and 4.75%.”
The Bureau of the Treasury plans to raise as much as P15 billion in tomorrow’s auction of the reissued 10-year T-bonds with a remaining life of nine years and eight months.
