Yield Tracker

YIELDS ON government securities (GS) fell slightly following data showing slower Philippine economic growth.
On average, debt yields — which move opposite to prices — slid by 5.35 basis points (bps) week on week, the PHP Bloomberg Valuation Service Reference Rates as of Jan. 25 published on the Philippine Dealing System’s website showed.
Michael L. Ricafort, economist at Rizal Commercial Banking Corp. (RCBC), pointed to the country’s slower fourth-quarter gross domestic product (GDP) growth as one factor that caused the decline in yields on all tenors.
“Slower-than-expected Philippine economic/GDP growth data announced last Thursday partly caused the latest decline in local interest rates, with the long-term interest rate tenors already at the lowest levels in 4-7 months and already down by a total of 1.80/2.00 [bps] from the decade-highs posted on Oct. 22, 2018,” he said.
“Furthermore, stronger peso on Friday at P52.54, the best in a week, also led to the latest declines in local benchmark interest rates. Local interest rates were lower amid continued expectations that inflation will continue to ease/trend lower in the coming months,” Mr. Ricafort added.
The economy grew by 6.1% in the fourth quarter, slower than the 6.5% expansion recorded a year earlier. The final quarter’s outcome brought the full-year GDP growth to 6.2%, missing the downward-revised 6.5%-6.9% target of the government for 2018.
Meanwhile, Jose Patricio F. Casas of Union Bank of the Philippines, Inc.’s Treasury-Peso Government Securities Desk described last week’s trading as “subdued” as market players mostly stayed on the sidelines.
RCBC’s Mr. Ricafort said external factors also affected the decline in rates across all tenors. “Slower global economic growth as earlier estimated by the International Monetary Fund, as well as signals that the US-China trade war talks is still far from being resolved…have led to greater cautiousness on US and global economic prospects, thereby resulting (in) more dovish signals and lower US/global bond yields that, in turn, partly leading to lower local interest rates as well.”
At the secondary market on Friday, rates of all tenors declined across the board. Yields dropped the most in the short end as the one-year debt fell 20.10 bps to 6.069%, followed by 91-day and 182-day Treasury bills (T-bill), which declined 19 bps and 9.9 bps to fetch 5.473% and 6.004%, respectively.
Treasury bonds (T-bonds) at the belly of the curve also declined across-the-board. The rates of the two-, three- and seven-year bonds fell by 1.4 bps, 1.8 bps and 2.1 bps, respectively, to finish at 6.216%, 6.266% and 6.387%. Meanwhile, yields on the four- and five-year T-bonds also fell to end at 6.3% and 6.33%, respectively.
Longer-term debt papers likewise dropped, with the 10-, 20- and 25-year T-bonds yielding 6.478%, 6.784% and 6.92%, down by 0.40 bp, 3.60 bps and 3.2 bps, respectively.
Looking forward, Mr. Ricafort expects benchmark rates, especially those on short-term tenors, to continue their decline this week. “Amid slower-than-expected economic/GDP growth locally and in the US/globally as the US-China trade war and the US government shutdown persist and both with no imminent resolution in sight yet, as all of these support the easing trend in local/global inflation,” he said.
Meanwhile, UnionBank’s Mr. Casas said: “Treasury bill auction is scheduled [this] week and we expect yields to be 5-10 bps lower for the three tenors. As for the T-bonds, we expect yields to trade within range with a bias on the downside. Market players will be looking at global developments for further direction.” — Lourdes O. Pilar

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