Yield Tracker

YIELDS ON government securities (GS) rose slightly last week amid expectations of monetary policy easing and continued global market correction as well as the holiday-shortened trading week.

On average, debt yields — which move opposite to prices — inched up by 4.1 basis points (bp) week on week, the PHP Bloomberg Valuation Service Reference Rates as of April 17 published on the Philippine Dealing System’s website showed.

Michael L. Ricafort, economist at Rizal Commercial Banking Corp. (RCBC), said in an email that yields become “less inverted” after declines in short-term interest rates and the continuous “healthy” upward correction in long-term tenors following bigger declines last month.

“The one-month and three-month tenors were again slightly lower by -0.04 week-on-week after recent hints about possible monetary policy easing as early as the next monetary policy meeting on May 9, 2019 amid easing inflation trend,” said Mr. Ricafort.

The Bangko Sentral ng Pilipinas’ Monetary Board will hold its third policy review for this year on May 9 and might consider a cut in benchmark interest rates.

Mr. Ricafort added that “government bond yields in the US and in other developed countries mostly continued to correct higher recently…after global crude oil prices lingered at new 5-month highs on reduced output by OPEC (Organization of Petroleum Exporting Countries) and non-OPEC member countries as well as possible full enforcement on the US-led sanctions on Iranian oil exports by May 2019, and partly after recent comments from some Fed officials that fed fund rates may remain unchanged until the fall of 2020.”

For his part, Nicholas Antonio T. Mapa, senior economist at ING Bank N.V.’s Manila branch, said last week’s trading was “lackluster,” with most market participants likely out for the holidays.

“Most dealers were generally trimming positions with two days off,” Mr. Mapa said in an email.

At the secondary market on Wednesday, at the short end, the 182- and 364-day Treasury bills (T-bill) climbed by 0.8 bp and 1.5 bps to yield 5.962% and 6.102%, respectively, while the rate of the 91-day T-bill fell by 3.6 bps to 5.691%.

At the belly of the curve, rates increased across the board. The seven-year Treasury bond (T-bond) went up by 11.7 bps to yield 5.982%, followed by the five-year T-bond which saw its rate climb 8.3 bps to 5.909%. The two-, three- and four-year debt papers gained 4 bps (5.971%), 4.4 bps (5.915%) and 6.1 bps (5.897%), respectively.

“The 7-year to 9-year benchmark interest rates posted the biggest weekly increase of +0.12 — near one-month highs; but still among 10-month lows — partly due to higher global oil prices hovering among 5-month highs that led to higher local fuel pump prices, possible increase in electricity rates amid peak electricity demand…[and the] El Niño drought that could lead to some increase in agricultural prices,” noted RCBC’s Mr. Ricafort.

“Similarly, on external factors, the 10-year US government bond yield corrected higher recently to 2.60%, near one-month highs…, up from the low of 2.34% on March 28, 2019.”

At the long end, the 10- and 20-year T-bonds saw their rates go up by 11.0 bps (6.065%) and 2.6 bps (6.051%), respectively. The 25-year bond fell by 2.2 bps to yield 6.18% from a week ago.

Going forward, Mr. Ricafort expects short-term yields to continue their recent declining trend amid possible monetary easing by way of a cut in policy rates.

ING’s Mr. Mapa said investors are also staying “defensive” ahead of the 20-year T-bond auction this week. — Lourdes O. Pilar