Yield Tracker

By Mark T. Amoguis
Researcher
YIELDS on government securities (GS) went down last week after the release of steady October inflation as well as slower third-quarter economic growth data, which may prompt the central bank to moderate its policy tightening at its meeting this week.
Debt yields, which move opposite to prices, dipped by a week-on-week average of 12.5 basis points (bps), according to the PHP Bloomberg Valuation Service (BVAL) Reference Rates as of Nov. 9 published on the Philippine Dealing System’s Web site.
Carlyn Therese X. Dulay, first vice-president and head of Institutional Sales at Security Bank Corp., said last week’s yield movement followed the release of the October inflation print and the third-quarter gross domestic product (GDP) figure.
“This emboldened market participants and end clients onshore and offshore to take positions,” she said.
Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, agreed: “This week-on-week decline may have seen more stable factors such as the positive sentiment that inflation may have already peaked. Another possible driver is the still respectable, but slower, Q3 GDP growth result.”
He added that other external factors that may have influenced yields last week such as the US midterm elections and the continuing saga of the trade war between the US and China.
For his part, Nicholas Antonio T. Mapa, senior economist at ING Bank NV-Manila Branch, said: “Risk sentiment for bonds and currencies has improved considerably in November with global developments relatively positive.”
The Philippine Statistics Authority (PSA) reported last Tuesday that the increase of prices of widely used goods steadied in October amid high food, transport, and utilities costs.
October inflation printed at 6.7%, steady from September and picking up from 3.1% a year ago.
It matched the median of BusinessWorld’s poll of 15 economists and fell within the 6.2-7% forecast range given by the Bangko Sentral ng Pilipinas, but was faster than the 6.5% estimate of the Department of Finance.
The latest reading brought year-to-date inflation to 5.1%, beyond the BSP’s 2-4% target albeit below the 2018 forecast of 5.2%.
In a separate report last Thursday, the PSA said the economy grew at its slowest pace in three years during the July-September quarter due to dampened household spending brought about by high inflation as well as the agriculture sector’s decline.
GDP grew by 6.1% annually in the third quarter, slower than the 6.2% in the April-June period and the 7.2% posted in the third quarter last year.
This was slower than the 6.3% median estimate in the BusinessWorld’s poll of 15 analysts and the slowest pace since the 6% recorded in the second quarter of 2015.
Economic growth averaged 6.3% in the first nine months, below the government’s revised 6.5-6.9% target range for the year.
GS yields declined across all tenors, except for 91- and 182-day debt, which went up by 7.4 bps and 3.3 bps, respectively, fetching BVAL rates of 5.172% and 5.948% at the close of the market last Friday.
The largest decline was recorded in the seven-year note, which went down by 29.5 bps to 7.553%. It was followed by five-, four-, 10-, 20-, and three-year bonds, which fell by 28.5 bps, 21.6 bps, 20.0 bps, 19.7 bps, and 12.5 bps, respectively, yielding 7.274%, 7.133%, 7.814%, 8.142%, and 6.979%.
Yields on 25-, two-, and one-year notes also declined by 7.5 bps, 4.9 bps, and 4.2 bps, respectively, to 8.37%, 6.77%, and 6.522%.
For this week’s trading, ING’s Mr. Mapa said: “Market will be looking to the BSP meeting for direction.”
Security Bank’s Ms. Dulay expects GS yields’ levels “to stay rangebound until there is clearer direction from the MB (Monetary Board) meeting.”
The policymaking body of the central bank, the Monetary Board (MB), is scheduled to hold its review on Nov. 15, Thursday.
In late October, BSP Governor Nestor A. Espenilla, Jr. hinted on a “moderate” policy tightening for this meeting.
Meanwhile, MB Member Felipe M. Medalla has said monetary authorities may “take a pause” should latest month-on-month inflation show signs of easing.
Since May, MB has implemented rate hikes worth 150 bps, bringing the benchmark rates to 4-5% range, to temper rising inflation.

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