Yield Tracker

By Lourdes O. Pilar

YIELDS ON government securities (GS) fell almost across-the- board last week following the release of slower-than-expected inflation data for September.

Week on week, government securities’ (GS) yields went down by 10.1 basis points (bp) on average, according to the PHP Bloomberg Valuation Service (BVAL) Reference Rates as of Oct. 4 published on the Philippine Dealing System’s website.

“Positive signs of economic growth encourage a decline in GS prices. The not-so-encouraging US manufacturing data may have had an impact and the lower-than-expected inflation print have also contributed to this week’s GS movements,” said Union Bank of the Philippines, Inc. (UnionBank)Chief Economist Ruben Carlo O. Asuncion in an e-mail.

ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro likewise attributed the rally to the September inflation result, adding that falling global bond yields contributed to increased buying sentiment for debt papers.

“[September’s] inflation print of 0.9% validated investors’ short-term expectations and caused yields to drift lower,” Mr. Liboro said in a separate e-mail.

Inflation decelerated to 0.9% in September, the slowest since the 0.7% logged in April 2016 and matching the 0.9% inflation rates in May 2015 and May 2016.

It was also within the Bangko Sentral ng Pilipinas’ (BSP) projection of 0.6%-1.4% for the month and below the median estimate of 1.1% in a BusinessWorld poll of economists.

The September result brought the nine-month average to 2.8%, well within the BSPs 2-4% target range and 2.5% forecast for the year.

Meanwhile, US manufacturing activity tumbled to a more than 10-year low in September amid lingering trade tensions weighing on exports, which further stoked fears of a sharp slowdown in economic growth in the third quarter.

The Institute for Supply Management’s index of national factory activity, which dropped 1.3 points to a reading of 47.8 last month, was its lowest in June 2009.

An index reading below 50 indicates contraction in the manufacturing sector, which accounts for about 11% of the US economy.

At the secondary market, bond yields fell almost across-the-board at the close of trading last Friday except for the 364-day Treasury bills (T-bills), which inched up by a mere 0.5 bp to fetch 3.71%.

At the short end of the yield curve, rates on the 91- and 182-day T-bills fell 3.3 bps and 8.7 bps to 3.096% and 3.314%, respectively.

At the belly, yields on the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) fell by 9.9 bps (to 3.952%), 11.6 bps (4.094%), 14 bps (4.225%), 16.5 bps (4.347%), and 16.4 bps (4.537%).

The long end of the yield curve saw rates on the 10-, 20-, and 25-year T-bonds decline by 9.6 bps, 10.4 bps, and 11.5 bps, respectively, to fetch 4.724%, 5.011%, and 4.985%.

For this week, UnionBank’s Mr. Asuncion expects data on Philippine foreign trade and foreign direct investments, which are scheduled to be released on Thursday, to drive yield movements.

“I do expect positive signs for the economy from these data (or at least, will be pointing to positive signs). Thus, I would expect further decline in prices of government securities as investors tend to be risk averse,” Mr. Asuncion said.

ATRAM Trust’s Mr. Liboro said the local bond market “is likely to be more reactive to movements in global bond yields” given the “absence of local catalysts over the next couple of weeks.”

“Local bond yields are likely to consolidate along current levels unless sharp movements abroad cause additional volatility,” Mr. Liboro said.

In a text message last Friday, BDO Unibank, Inc. chief market strategist Jonathan L. Ravelas expect rates to “move sideways to down” this week.