Yield Tracker

YIELDS on government securities (GS) climbed last week to track movements in US Treasuries, as well as increased expectations of a Federal Reserve rate hike due to the upbeat US January inflation print.

On average, GS yields — which move opposite to prices — were up by 13.76 basis points (bps) week on week, data from the Philippine Dealing & Exchange Corp. as of Feb. 15 showed.

“GS yields rose [last] week still because of US rate hike expectations, which were further bolstered by January’s better-than-expected US inflation report,” Land Bank of the Philippines (Landbank) market economist Guian Angelo S. Dumalagan said via e-mail.

Security Bank Corp. Head of Institutional Sales Carlyn Therese X. Dulay shared the same sentiment, saying “global yields continued to head north on better US CPI (Consumer Price Index) [last] week,” while on the local front, Ms. Dulay said “yields caught up on fair pricing due to the unexpected January CPI print at 4%.”

Late last week, the US Bureau of Labor Statistics (BLS) reported that CPI came in at 0.5% in January, higher than market expectations.

Meanwhile, a local bond trader interviewed last Thursday said “bonds tracked the move of US Treasuries with global interest rates rising on inflation concerns.”

“Higher [US Treasury bonds] also put market participants on the defensive though bids may firm up [this] week after the surprise Reserve Requirement Cut on Thursday,” Ms. Dulay said.

The Bangko Sentral ng Pilipinas (BSP) on Thursday announced an “operational” adjustment in the reserve requirement ratio, which was reduced by one percentage point. This, according to BSP, will support the central bank’s shift toward a more market-based implementation of monetary policy as well as its broad financial market reform agenda.

At the secondary market on Thursday, in the short end of the curve, the yield on the 91-day Treasury bills (T-bills) increased by 7.42 bps to 2.7847%. The 182- and 364-day T-bills also increased by 13.57 bps and 35.31 bps to yield 3.0068% and 3.2796%, respectively.

In the belly, the yield on the seven-year Treasury bonds (T-bonds) increased the most, rising 27.67 bps to 6.4571%. Meanwhile, the rates of the two- and five-year T-bonds increased by 19.57 bps (4.1109%) and 5.70 bps (4.9763%), respectively. On the other hand, the three- and four-year debt papers saw their yields decline by 9.06% (4.2793%) and 25.75 bps (4.7489%), respectively.

In the long end, the 10-, and 20-year bonds saw their rates increase by 17.57 bps and 45.55 bps to 6.7089% and 6.4568%, respectively.

For this week, Landbank’s Mr. Dumalagan said: “There might be sideways movement in yields next week due likely mixed US economic reports and amid scarcity of economic data releases in the Philippines and in other countries outside of the US.”

“Producer prices in the US are expected to rise at a faster pace, tracking [last] week’s strong headline inflation data and lending support to views of another US interest rate hike in March 2018. The rise in yields, however, might be tempered by likely softer US reports on manufacturing, services, and housing,” Mr. Dumalagan added.

For her part, Security Bank’s Ms. Dulay, said: “Expect yields to continue to range as UST (US Treasury) levels remain choppy and ahead of the 20-year auction scheduled [this] week.”

The Bureau of the Treasury plans to raise as much as P20 billion at Tuesday’s auction of fresh 20-year T-bonds. — Ranier Olson R. Reusora

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