Yield Tracker

YIELDS ON government securities declined last week following a correction, even amid a more hawkish central bank.
Local debt yields, which move opposite to prices, fell 15.91 basis points (bp) on the average week on week, data from the Philippine Dealing & Exchange Corp. as of Oct. 26 showed.
“Most of the long-term…yields declined by about 30-40 bps week-on-week, the first major downward correction after reaching the highest levels in nearly a decade earlier this week and after the sharp increase in yields since Sept. 2018,” Michael L. Ricafort, economist at the Rizal Commercial Banking Corp. (RCBC).
“However, this was offset by the latest signal from the Bangko Sentral ng Pilipinas (BSP) about the possibility of a modest hike in policy rates for the rest of 2018. [This was] more hawkish compared to earlier hints by some BSP officials about a possible pause in policy rate hikes, thereby curbing any further declines in yields,” added Mr. Ricafort.
For Security Bank Corp. First Vice-President and Head of Institutional Sales Carlyn Therese X. Dulay: “Yields moved down by 50-85 bps week on week after traders felt rates were toppish following a 300-bp move year-on-year.”
“The rejection of the [seven-year bond], which boosted risk appetite from end users, dealers and offshore players, was also a factor in lower rates,” she added.
Despite tenders reaching P24.456 billion versus its P15-billion offer, the Bureau of the Treasury rejected all bids during the auction of the reissued seven-year bonds last week. Investors asked for higher rates which averaged 8.284% compared to the bond’s 5.75% coupon rate and 7.085% average yield fetched when the papers were last sold in September.
Moreover, Ms. Dulay said the maturity of some P11-billion in government debt last week “also called for the reallocation of cash which spurred yields to move downward even further.”
At the secondary market on Friday, the yield on the 91-day Treasury bill (T-bill) fell by 19.06 bps from the previous week to end at 4.6433%. The 182- and 364-day T-bills, meanwhile, saw their rates go up by 53.13 bps and 3.61 bps, respectively, to finish at 6.1385% and 6.2950%.
At the belly of the curve, the two-, three-, four-, and five-year Treasury bonds (T-bond) saw their rates drop by 51.49 bps, 42.59 bps, 40.52 bps and 43.20 bps, respectively, to end with 6.7815%, 6.9874%, 7.9019% and 8.1519%. On the other hand, seven-year T-bond rose 42.62 bps to fetch 8.3604%.
At the long end, the 10- and 20-year bonds saw their yields decrease by 38.44 bps and 23.18 bps, respectively, to 7.6685% and 8.8228%.
Moving forward, Security Bank’ Ms. Dulay expects the market’s correction to continue this week.
“We still see yields moving down a bit more assuming Treasury bill auction yields are within market expectations,” she said.
RCBC’s Mr. Ricafort shared the same view, noting that the downward correction for long-term interest rates might extend to this week if signals of easing inflation remain.
“Lower global crude oil prices, lower food/rice prices, and stronger peso exchange rate could lead to lower inflation and inflation expectations and could fundamentally support the downward correction in local interest rates/PDST-R2 yields as well,” he said. — Lourdes O. Pilar

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