Yield Tracker

EXPECTATIONS of a trade dispute escalating between the world’s two largest economies and the spillover effects of the Turkish lira to emerging markets sent investors into safe-haven buying mode, causing yields on local government securities (GS) to go down last week.
Week on week, GS yields declined by an average of 14.52 basis points (bps), data from the Philippine Dealing & Exchange Corp. as of Aug. 31 showed.
At the secondary market, the yield on the 91-day Treasury bills (T-bill) went down by 43.63 bps to fetch 3.2137%, while the 182- and 364-day T-bills saw their rates respectively go up by 4.89 bps (4.0903%) and 3.47 bps (4.8648%).
At the belly of the curve, the two-, three- and seven-year Treasury bonds (T-bonds) rallied, with rates going down by 23.60 bps (4.9711%), 22.12 bps (5.0734%), and 35.24 bps (6.1297%). Meanwhile, those of four- and five-year debt papers went up by 3.43 bps and 0.40 basis point, yielding 5.8768% and 5.7917%, respectively.
At the long end, prices on the 10-year T-bonds went up as the yield went down by 35.5 bps to 6.37%. On the other hand, the rate of the 20-year T-bond posted a 2.66-bp rise to 7.3217%.
“GS yields fell [last] week due to safe-haven buying amid lingering concerns over the trade war between the US and China as well as the possible spillover effects of the Turkish lira’s weakness,” said Land Bank of the Philippines’ (LANDBANK) market economist Guian Angelo S. Dumalagan.
“The decline in yields was generally consistent across the curve with the exception of some tenors whose yields increased possibly due to expectations of some hawkish policy moves from the BSP and the US Federal Reserve next month,” Mr. Dumalagan added.
The US-China trade war may take a turn for the worse as reports noted US President Donald J. Trump’s desire to impose further tariffs on another $200 billion worth of Chinese imports.
This is on top of the tariff on $50 billion of Chinese goods already imposed earlier, of which China responded in kind on US goods. Trade talks last week failed to make any major progress even as both the US and China were reported to have “exchanged views on how to achieve fairness, balance, and reciprocity in the economic relationship.”
Meanwhile, the US Federal Reserve opted to leave policy rates unchanged during its August meeting. However, the central bank is widely expected to tighten its benchmark rates next month. The minutes of the meeting pointed to expectations toward further gradual hikes as many officials said it would likely “soon” be appropriate to raise interest rates.
On the local front, Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla, Jr. said last week in a forum that they have “kept the door open” for further monetary policy tightening “as may be necessary” in order to temper price pressures.
To recall, inflation hit a fresh multiyear high of 5.7% in July, pulling the seven-month average in overall price increases to 4.5%, which is above the BSP’s 2-4% target range for 2018.
Looking forward, LANDBANK’s Mr. Dumalagan expects GS yields to move “with an upward bias” this week on account of a likely stronger Philippine inflation data and “generally firm” US labor reports that might increase hopes of a more hawkish central bank guidance this month. — VMPG

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