Yield Tracker

By Carmina Angelica V. Olano
YIELDS on government securities (GS) traded in the secondary market rose slightly last week on demand following the highly anticipated decision of the Bangko Sentral ng Pilipinas (BSP) to hike rates.
On average, GS yields inched up by 2.39 basis points (bps) week on week on Friday as bond prices of medium- to long-tenored notes dipped from a week ago levels, data from the Philippine Dealing & Exchange Corp. showed.
“Yields ended ‘flatter,’ where movement is slightly higher on the short-end while lower at the belly to long-end of the curve. The BSP’s decision to hike rates on Thursday last week [drove] yields lower on hawkish statements of Governor Nestor A. Espenilla, Jr. that the central bank is ready to act if inflation rises further. This is bullish on bonds because it means inflation expectation is being managed,” a bond trader said by phone.
For his part, Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (LANDBANK) said: “Upward pressures prevailed overall, giving yields a slight positive bias,” as yields generally moved sideways on “mixed signals.”
Internal factors such as the accelerated economic growth in the first quarter, [has given] confidence to the BSP to finally hike policy rates to address broadening inflation. [These] generally pushed yields higher,” he said.
Meanwhile, external factors such as the further pick up in the April US inflation, “suggesting more US rate hikes ahead,” as well as its “softer-than-expected” labor report “had mixed impact on yields,” he added.
For First Metro Asset Management, Inc. (FAMI) the yields on GS ended flat last week as the market has already factored BSP’s rate hike ahead of its announcement.
“There’s no big movement that happened in the GS trading last Friday,” but noting a rally on the 3-5 year tenor “given that the market is still anticipating another rate hike,” it said.
Last Thursday, the BSP raised key policy rates by 25 bps — its first tightening move in nearly four years — at a time of five-year highs for inflation and robust economic growth. Overnight lending rate now stands at 3.75%, overnight reverse repurchase rate at 3.25%, and overnight deposit rate at 2.75%.
In the US, the Bureau of Labor Statistics showed new jobs created reached 164,000 in April, lower than the 192,000 expected payrolls growth in a Reuters poll. In a different Reuters report, US consumer prices rebounded to 0.2% in April after slipping 0.1% in March.
At the secondary market, the 10-year Treasury bonds (T-bonds) ended with the highest yields and the only note that rose at the longer-end of the curve. It climbed 39.09 bps to 6.5286% to week-on-week.
At the belly of the curve, the 2-year and 3-year securities went up by 1.23 bps and 8.49 bps to 4.3069% and 4.6653%, respectively.
This week, analysts said yields will continue to move sideways.
“Yields might generally move sideways [this] week amid bets of mixed drivers abroad and likely lukewarm US data on retail sales and housing. Expectations of more rate hikes from the US Federal Reserve and the BSP this year could push yields higher,” said LANDBANK’S Mr. Dumalagan.
For FAMI, “We can say that we’re going to see a flat yield curve until the next rate hike to be implemented by the BSP,” expecting another rate hike for at the third quarter this year.