Yield Tracker

By Mark T. Amoguis
YIELDS ON government securities (GS) ended flat last week as investors took profit following the settlement of the government’s retail Treasury bond (RTB) offering.
Bond yields, which move opposite to prices, slightly increased by an average of 5.4 basis points (bp) week-on-week, according to the PHP Bloomberg Valuation Service Reference Rates as of March 15 published on the Philippine Dealing System’s Web site.
“Market players traded in reaction to the settlement of the retail Treasury bond with action muted given lack of liquidity,” said Nicholas Antonio T. Mapa, senior economist at ING Bank N.V.’s Manila Branch.
“Some dealers opted to take profit as well given recent risk-off tone on the reversal in fortunes for the peso and delays to the US-China trade negotiations,” he added.
For his part, Michael L. Ricafort, economist at Rizal Commercial Banking Corp., said local benchmark rates “mostly corrected higher week-on-week, largely triggered by the weaker peso exchange rate [last] week to the weakest levels in more than a month, after the latest hints about possible monetary easing.”
“The latest 5-year RTB issuance totalling P236 billion also siphoned off supply of money from the financial system and also partly caused the upward correction in local interest rate benchmarks this week,” he said.
The government raised a total of P236 billion from its offering of five-year RTBs due 2024 with a 6.25% rate.
It was offered to the general public from Feb. 26 to March 8 through 21 authorized selling agents at denominations of P5,000.
These bonds were settled last March 12.
To support the funding requirements of the government, the Bureau of the Treasury plans to borrow P360 billion domestically during the first quarter of the year through a mix of short- and long-term notes.
Meanwhile, last Tuesday, the peso declined to a six-week low against the dollar to P52.70 after newly appointed Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno said he is looking to cut the banks’ reserve requirement ratio (RRR) in four successive moves this year.
Big banks’ mandatory reserves currently stand at 18% after the central bank trimmed the RRR in two 100-bp moves in March and June last year.
Should the planned cuts materialize, the RRR will be at 14% by early 2020.
Meanwhile, the meeting between the heads of US and China to resolve the ongoing trade war will not take place this month and is likely to occur in April, according to a Bloomberg report. US President Donald J. Trump and China President Xi Jinping were supposed to meet at the former’s Mar-a-Lago resort in Florida this March.
At the close of trading last Friday, yields on three- and six-month debt went up by 24.2 bps and 2.7 bps, respectively, to fetch 5.676% and 5.905%. The one-year paper, however, declined by 2.6 bps to 6.054%.
The belly of the curve inched up, with the two-, three-, four-, five-, and seven-year bonds climbing 3.4 bps, 6.7 bps, 10.2 bps, 12.5 bps, and 12.4 bps, respectively, to 6.006%, 6.049%, 6.099%, 6.142%, and 6.18%.
The yield on the 10-year note also increased by 7.9 bps to 6.18%, while the 20- and 25-year papers dropped 5.3 bps and 12.8 bps, respectively, to fetch 6.311% and 6.437%.
For this week, market watchers pointed to the upcoming policy meeting of the central bank’s Monetary Board on Thursday. This will be the first meeting of Mr. Diokno as the new central bank chief.
This week, “local benchmarks interest rates could be steady to a bit lower, in view of the upcoming BSP monetary policy-setting meeting on Thursday, March 21, 2019, after the latest hints about further monetary easing in the coming months amid the easing/declining trend in inflation,” RCBC’s Mr. Ricafort said.
For his part, ING’s Mr. Mapa said “investors will be looking to the BSP policy meeting where the BSP is expected to keep rates steady although there is a growing consensus that rates may be lowered sometime in 2Q given decelerating inflation and the dovish central bank governor.”