Yield Tracker

By Christine J.S. Castañeda
Senior Researcher

YIELDS on government securities (GS) were flat last week as investors await the release of major economic data in the coming days.

On average, debt yields — which move opposite to prices — went down by 0.5 basis point (bp) week on week, the PHP Bloomberg Valuation (BVAL) Service Reference Rates as of April 26 published on the Philippine Dealing System’s website showed.

In an email, Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc., said: “The market has been quiet with domestic major economic data still to be released on the second week of May.”

“Players were looking at international events to help move the local market but the average yield decline showed marginal movement,” Mr. Asuncion said, adding that the announcement of first quarter inflation may have also contributed to the flattish yield last week.

For his part, Nicholas Antonio T. Mapa, senior economist at ING Bank N.V.’s Manila branch, said in an email: “Market players were in consolidation mode in a calamity-shortened trading week with investors lacking any sort of impetus to push market either way.”

“Investors did react to the surprise rejection of the 20-year auction but even this reaction was muted with investors looking to fresh clues on inflation and the Bangko Sentral ng Pilipinas (BSP),” he added.

Meanwhile, Michael L. Ricafort, economist at the Rizal Commercial Banking Corp., said in an email interview: “The latest week-on-week declines in most local interest rate benchmarks largely reflect the similar easing in the government bond yields in the US and other developed countries after global oil prices corrected lower from six-month highs specially in the latter part of the week after bigger-than-expected increase in US crude oil inventories.”

“Local interest rate benchmarks also mostly eased week-on-week after the narrower budget deficit data for [the first quarter of the year], largely brought by slower growth in government spending after the delays in the 2019 national budget,” Mr. Ricafort added.

Headline inflation for the first quarter of the year slowed to 3.8% from the previous quarter’s 5.9%, the central bank’s quarterly Inflation Report released last April 26 showed.

Meanwhile, the Bureau of the Treasury (BTr) rejected bids for its P20-billion offer of reissued 20-year bonds last Wednesday as yields sought by investors were higher than secondary market rates.

At the secondary market on Friday, at the short end, the 91- and 182-day Treasury bills (T-bill) went up by 4.1 bps and 0.2 bp to yield 5.732% and 5.964%, respectively. The 364-day T-bill yielded 6.105%, up 0.3 bp.

At the belly of the curve, the rates of the two-, three-, and four-year debt papers lost 1 bp (5.961%), 0.3 bp (5.912%) and 0.5 bp (5.892%). Yields on the five- and seven-year bonds also went down by 1.9 bps (5.89%) and 6.6 bps (5.916%).

At the long end, the 10-year bond saw its rate go down by 10 bps to 5.965% while the 20- and 25-year papers gained 1.5 bps and 8.7 bps to yield 6.066% and 6.267%.

For this week, Mr. Ricafort said: “Local interest rate benchmarks (PHP BVAL yields) could continue to ease [this] week amid expectations of easing inflation trend in view of the release of the latest inflation data on May 7, 2019, followed by a possible easing of monetary policy as early as May 9, 2019.”

“Players are expected to rely on outside market drivers [this] week while waiting for huge data releases next [week],” said UnionBank’s Mr. Asuncion.

April inflation and first quarter gross domestic product will be released by the Philippine Statistics Authority on May 7 and May 9, respectively.

For ING’s Mapa: “Investors will likely take their cue from fresh supply as well as the BSP’s inflation forecast for April.”