Yield Tracker

By Christine J.S. Castañeda
Senior Researcher
YIELDS on government securities (GS) were flat last week amid the suspension of excise taxes on fuel and the central bank’s policy rate hike.
On average, GS yields — which move opposite to prices — went down by 8.77 basis points (bp), according to the PHP Bloomberg Valuation Service (BVAL) Reference Rates as of Nov. 16 published on the Philippine Dealing System’s Web site.
Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, said: “Market players were mostly on the sidelines [last] week.”
“All eyes were on the BSP’s (Bangko Sentral ng Pilipinas) move, and it seems market participants were positive on the inflation situation bolstered by the suspension of excise taxes on fuel next year,” he added.
Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines (LANDBANK) said: “GS yields fell [last] week following the decline in oil prices, the initial drop in local stocks, and the suspension of further excise taxes on fuel.”
“These developments solidified views of easing inflation in the coming months. The drop in yields was tempered by the 25-bp rate hike of the BSP,” Mr. Dumalagan added.
The central bank raised policy rates by 25 bps in its Nov. 15 meeting. This was the fifth consecutive time the central bank raised its policy rates this year after the two 50-bp increases in August and September and two 25-bp increases in May and June.
Meanwhile, Malacañang has approved the suspension of the P2 per liter increase in fuel excise tax scheduled in January 2019. The Palace announced the approval through a Nov.8 memorandum from Executive Secretary Salvador C. Medialdea informing Finance Secretary Carlos G. Dominguez III, Budget Secretary Benjamin E. Diokno, Socioeconomic Planning Secretary Ernesto M. Pernia and Energy Secretary Alfoso G. Cusi “of the approval of your [Oct. 11] recommendation to suspend the next scheduled increase in the excise tax on fuel…”
GS yields ended mixed at the close of the market last Friday. The 91- and 182-day papers increased by 12.60 bps and 15.60 bps to fetch 5.298% and 6.104%, respectively. The 364-day debt inched up by 1 bp to 6.532%. The two- and 20-year notes also went up by 0.30 bps to 6.773% and 8.145%, respectively.
On the other hand, the largest decline was seen for the 10-year bond which lost 47.90 bps to 7.335%. It was followed by the seven-, 25-, and five-year bonds which fell by 31.80 bps, 20.20 bps and 14.60 bps, respectively, yielding 7.235%, 8.168%, 7.128%. The four- and three-year notes also shed 8.30 bps and 3.50 bps to fetch 7.05% and 6.944%.
For this week, LANDBANK’s Mr. Dumalagan said: “GS yields might show some upward bias [this] week, as likely firm US reports on housing, manufacturing,and services could divert investors’ attention to the possible December 2018 rate hike of the US Federal Reserve.”
“The recent increase in BSP policy rates might also push yields higher, although geopolitical concerns and growing expectations of easing inflation might keep yield increases minimal,” he added.
For his part, UnionBank’s Mr. Asuncion said: “[This] week, the market is anticipated to be more active now that monetary policy is clearer and may mean that this is the last BSP hike for this cycle.”

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