Yield Tracker

By Lourdes O. Pilar

YIELDS ON government securities (GS) increased across the board last week as they tracked the movement of US Treasuries following news of a potential trade deal between the US and China.

GS bond yields rose by an average of 11 basis points (bps) week on week, according to the PHP Bloomberg Valuation (BVAL) Service Reference Rates as of Sept. 13 published on the Philippine Dealing System’s website.

“Bond yields moved higher to track US Treasuries for most of the week with the general tone of risk-off dominating on lack of fresh developments on the trade issue,” ING Bank N.V. Manila senior economist Nicholas Antonio T. Mapa said in an e-mail.

“Positive turns in hopes for a trade war negotiation breakthrough and the European Central Bank (ECB) easing helped boost buying momentum to close the week. Dovish comments from the Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno also helped boost sentiment with the market looking to the US Federal Reserve for direction,” he added.

UnionBank of the Philippines, Inc. chief economist Ruben Carlo O. Asuncion noted “positive news about goodwill” on a “potential trade deal” between the US and China amid their festering trade war.

“[US President Donald J. Trump’s] advisers were even considering an interim deal with China before the main deal to be eventually hashed out,” Mr. Asuncion said.

“Aside from this positive news, BSP Governor Benjamin E. Diokno has hinted on another rate cut and even a potential reserve requirement ratio (RRR) cut this month.”

Mr. Trump said last Wednesday that he will delay the next planned tariff increases on Chinese goods by two weeks as a “gesture of goodwill.” This involves the 25% tariff hike on $250-billion worth of Chinese goods originally scheduled for Oct. 1 that will now be implemented on Oct. 15.

Meanwhile, China also said it will exempt some US goods from the tariff hikes it plans to impose starting Sept. 17.

Back home, Mr. Diokno has hinted on a possible 25-bp cut in benchmark rates as well as another cut in big banks’ RRR as early as the Monetary Board’s Sept. 26 policy meeting.

The BSP has already reduced policy rates by 50 bps this year or by 25 bps each on May 9 and Aug. 8.

Yields went up across the board at the secondary market last Friday. In the short end of the curve, yields on the 91-, 192-, and 364-day Treasury bills (T-bill) increased by 4.5 bps, 6.1 bps, and 1.8 bps, respectively, to 3.345%, 3.513%, and 3.699%.

At the belly, the rates of the two-, three-, four-, five- and seven-year Treasury bonds (T-bonds) climbed by 12.1 bps (4.028%), 13.8 bps (4.161%), 13.7 bps (4.283%), 12.1 bps (4.388%), and 9.4 bps (4.553%), respectively.

At the long end, the yield on the 10-year debt paper increased by 18.5 bps to 4.764%. The rate of the 20-year bond also went up 15.9 bps to 5.130%, while the 25-year papers increased 13.4 bps to close at 5.096%.

“Yields are again expected to rise [this] week. It is expected that more positive news may come out next week regarding the prospects of a trade deal between China and the US,” UnionBank’s Mr. Asuncion said.