Yields on government debt end flat due to inflation, US Treasuries

By Christine J. S. Castañeda, Senior Researcher
YIELDS on government securities (GS) traded in the secondary market were flat last week amid developments abroad and at home.
On average, GS yields — which move opposite to prices — were up by 5.57 basis points (bps), data from the Philippine Dealing & Exchange Corp. as of April 27 showed.
Carlyn Therese X. Dulay, Head of Institutional Sales at Security Bank Corp., said: “On average, yields on government securities were up by 5.57 basis points due to the recent auctions, inflation expectations and higher UST (US Treasury) yields.”
For his part, Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (LANDBANK), said the increase in GS yields was “due to increasing US interest rates and waning geopolitical concerns abroad.”
The economist also noted that the “expected widening in the US fiscal deficit and bets of further tightening moves from the US Federal Reserve” helped the 10-year US Treasuries surpass the 3% mark last week.
“The historic meeting between North and South Korean leaders also helped push yields higher by reducing investors’ safe-haven appetite. The rise in yields was capped by the ECB’s (European Central Bank) cautious tone during its April 2018 monetary policy meeting,” he added.
At its auction last Tuesday, the government awarded P4.26 billion out of the planned P10 billion for securities maturing on Feb. 22, 2038. The 20-year papers fetched a coupon rate of 6.85% and an average rate of 6.85%, higher than the 6.414% rate of the 20-year bonds sold in February.
Meanwhile, last Tuesday, yield on the 10-year US Treasury bond topped 3% for the first time in more than four years. However, it fell below the 3% mark on Thursday.
On the other hand, leaders of North and South Korea met and vowed to a permanent peace treaty and to de-nuclearize the region on its Friday summit.
At the secondary market on Friday, in the short end of the curve, the 91-, and 182-day Treasury bills (T-bills) inched up by 1.80 bps and 21.74 bps to yield 3.4941% and 3.8285%, respectively. The 364-day paper went down by 40.60 bps to 3.8565%.
In the belly, yields on the two-, four-, five-, and seven-year Treasury bonds (T-bonds) increased by 6.77 bps (4.275%), 49.50 bps (5.495%), 4.45 bps (5.3543%) and 5.49 bps (5.8061%). Meanwhile, yield on the three-year bond lost 2.63 bps to 4.5735%.
In the long end, the 10-year T-bond saw its yield go down by 3.52 bps to 6.2052% while yield on the 20-year bond went up by 12.67 bps to 7.2196%.
For this week, LANDBANK’s Mr. Dumalagan said: “[Y]ields are expected to increase amid likely upbeat Philippine inflation data and firm US reports on PCE (personal consumption expenditures) inflation and employment. The likely hawkish tone of the US Federal Reserve during its meeting in May 2018 may also push yields higher, counteracting the impact of possibly softer US GDP growth in the first quarter.”
Mr. Dumalagan also added that yields could also rise [this] week, “as demand for safe-havens could moderate after North and South Korea agreed to completely denuclearize the Korean Peninsula.”
For her part, Ms. Dulay said: “[This] week, we expect market to trade within range given that we have another set of auctions plus the release of Philippine CPI (Consumer Price Index) which is expected to print at 4.5%.”
The Philippine Statistics Authority will report official inflation data on May 4.