Yield Tracker

By Mark T. Amoguis

YIELDS on government securities (GS) inched up last week as market players took profit ahead of the release of slower-than-expected March inflation data.

Debt yields — which move opposite to prices — increased by an average of 8.1 basis points (bp) on week-on-week, the PHP Bloomberg Valuation Service Reference Rates as of April 5 published on the Philippine Dealing System’s Web site showed.

A bond trader said in a mobile phone message that profit taking and unwinding of bets on a reserve requirement ratio (RRR) cut fuelled last week’s trading.

Michael L. Ricafort, economist at Rizal Commercial Banking Corp. (RCBC), said in an e-mail last Friday that yields on benchmark tenors corrected higher “partly due to latest signals from some BSP (Bangko Sentral ng Pilipinas) officials that any cut in policy rates or in large banks’ RRR may not be immediate, while signalling that easing of monetary policy will only be considered if inflation goes down further…”

In a separate e-mail, Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc., said: “There were a lot of positive drivers for yields [last] week. One is the general positive tone of the probable results of the trade negotiations between the US and China. Another is the adjusted Q4 GDP (gross domestic product) for the Philippines and, lastly, the lower-than-expected March 2019 inflation.”

“Market players have had more opportunities to profit off these particular ‘good news.’ There were bouts of sell-offs that dragged the yields downwards, but there were repositioning that happened pushing yields up,” he added.

Last Friday, the Philippine Statistics Authority (PSA) reported that inflation eased further for the fifth straight month in March to 3.3% from 4.3% in February and 4.3% in March last year on the back of slowing food prices.

The March figure fell within the central bank’s 3.1%-3.9% forecast for that month but lower than the 3.5% median estimate in a BusinessWorld poll of 13 economists.

The latest reading brought the year-to-date print to 3.8%, which is within the BSP’s 2%-4% target range for this year but above its 3% forecast for 2019.

BSP Governor Benjamin E. Diokno said the central bank will consider all relevant information at its next policy meeting in May.

The BSP chief has said he sees room to cut policy rates — currently at 4.25%-5.25% range — but clarified that monetary authorities still have to confirm if the downtrend in inflation will be sustained.

Meanwhile, the PSA revised upward on Thursday the GDP figure for the last quarter of 2018 to 6.3% from 6.1% initially, but the annual GDP growth for 2018 was kept at 6.2%.

On the other hand, according to a Reuters report, US President Donald J. Trump said the US and China are very close to making a trade deal that could be announced within four weeks.

At the close of the trading on Friday, the short end of the yield curve ended mixed as six-month Treasury bill increased by 2.6 bps to 5.966%, while three-month and one-year papers declined by 3.8 bps and 2 bps, respectively, to close at 5.761% and 6.077%.

Meanwhile, the belly of the curve went up as the two-, three-, four-, five-, and seven-year debt papers increased by 7.1 bps, 6.8 bps, 8 bps, 10.4 bps, and 16.7 bps, respectively, to fetch 5.893%, 5.816%, 5.759%, 5.731%, and 5.766%.

The long end likewise climbed as yields on the 10-, 20-, and 25-year bonds rose by 26.5 bps, 14.1 bps, and 2.5 bps, respectively, to 5.87%, 5.96%, and 6.12%.

For this week, UnionBank’s Mr. Asuncion said GS yields may continue to increase as the market may take its cue from foreign markets, citing the possible trade deal between the US and China.

The bond trader expects the “yield curve to bear steepen as dealers will try to trim their position ahead of 10-year [bond] auction and Holy Week. Yields may rise by additional 10 to 20 bps.”

The Bureau of the Treasury will offer on Wednesday reissued 10-year Treasury bonds worth P20 billion with a remaining life of nine years and nine months.