Yield Tracker

TRADING IN government securities (GS) was muted last week, causing yields to flatten, amid bargain hunting as investors watched developments in the United States and ahead of central banks’ monetary policy meetings this week.

Yields on government debt fell 3.19 basis points (bps) on average, according to Philippine Dealing & Exchange Corp. data as of March 16.

Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, said trading was mostly “muted” last week ahead of the US Federal Reserve and Bangko Sentral ng Pilipinas (BSP) policy meetings scheduled this week.

“However, there were buying interests seen that saw the yields decline during the week that may be a result of bargain hunting by investors,” the economist said.

“The expected policy meetings next week have kept most players cautious on the sidelines with minimal trading,” added Mr. Asuncion.

The Federal Open Market Committee will start a two-day meeting tomorrow, during which the US central bank is expected to raise interest rates for the first time this year.

Meanwhile, the BSP will hold its rate-setting meeting on March 22. The local central bank decided to cut the reserve requirement ratio for big banks during its Feb. 8 meeting, but announced the “operational” move only a week after.

For his part, Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines (LANDBANK), said short term yields fell due to “safe haven” buying amid political noise about the plan of US President Donald J. Trump to impose higher tariffs on steel and aluminum imports.

Security Bank Corp. Head of Institutional Sales Carlyn Therese X. Dulay agreed, saying that GS yields were slightly lower due to uncertainties surrounding tariffs and other US policies.

The tariffs of 25% on steel and 10% on aluminium imports, proclaimed by Mr. Trump last March 8, appear to soften what the US president billed as a global, “no-exceptions” move to protect the two industries under a 1962 national security trade law.

Mr. Trump’s sudden push for the tariffs triggered fears of a global trade war and rattled financial markets, according to a Reuters report.

A bond trader said yields for local GS were lower mainly on “client driven deals.”

“A relatively dovish stance by the BSP also forced dealers to come out of the woodwork,” the bond trader added.

At the secondary market, in the short end of the curve, the 91-, and 182-day Treasury bills (T-bill) fell by 46.34 bps and 65.60 bps to yield 2.9756% and 3.0261%, respectively. Meanwhile, the 364-day T-bill inched up by 37.64 bps to yield 4.0393%.

“Yields of shorter tenors also decreased following the unexpected drop in US retail sales. The overall decline, however, was tempered by firm US inflation report, which further supported views of another US rate hike this month,” added Mr. Dumalagan.

The US Commerce Department said retail sales slipped 0.1% last month. January data was revised to show sales dipping 0.1% instead of falling 0.3% as previously reported. It was the first time since April 2012 that retail sales have declined for three straight months.

US consumer price inflation rose in February, well within expectations, the Labor Department reported on March 12.

Excluding food an energy prices, the consumer price index rose 0.2% in February month-on-month for both headline and core gauges, in line with the market consensus.

At the belly, yields on the two-, four-, five-, and seven-year Treasury bonds (T-bond) increased by 2.70 bps (4.3598%), 25.83 bps (5.4338%), 5.29 bps (5.523%) and 12.85 bps (6.7571%). Meanwhile, the rate of the three-year bond dropped 79.64 bps to 4.4%.

Meanwhile, bonds at the long end of the curve saw increases in yields. The 10-, and 20-year T-bonds saw their yields go up by 24.75 bps to 6.1865% and 50.67 bps to 7.1629%, respectively.

LANDBANK’s Mr. Dumalagan said short term yields might rebound this week, tracking the possible increase in the US federal funds rate.

“Investors will definitely scrutinize the policy guidance and economic projections of the US central bank for clues about the future pace of US interest rate normalization. A change in consensus from three rate hikes to four rate hikes could cause a significant jump in yields across the curve.”

“The rise in yields, however, might be tempered by political noise on the protectionist trade policies of the present US administration,” he said.

“Locally, the BSP monetary policy meeting might also affect yield movements, especially if the said gathering echoes on a hawkish tone,” added Mr. Dumalagan.

Security Bank’s Ms. Dulay, for her part, expects yields to stay within range in the coming days, with some upward pressure ahead of the 10-year Treasury bond auction tomorrow.

UnionBank’s Mr. Asuncion sees investors staying on the sidelines ahead of the BSP and Fed policy meetings this week.

“Local bond traders will be watching the central bank meetings in the coming week for direction,” the bond trader said. — L.O. Pilar with Reuters