Yields on gov’t debt drop

By Lourdes O. Pilar
Researcher

YIELDS ON government securities (GS) ended mixed last week after the Bangko Sentral ng Pilipinas (BSP) unveiled a series of monetary stimulus to arrest the economic fallout wreaked by the coronavirus disease 2019 (COVID-19).

GS yields, which move opposite to prices, went down by a week-on-week average of eight basis points (bps), according to the PHP Bloomberg Valuation Service Reference Rates as of March 27 published on the Philippine Dealing System’s website.

“The BSP has engaged in limited bond-buying activities to stabilize the yield curve and investor sentiment,” ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said in an e-mail interview.

“Additionally, the announcement of additional liquidity via a 200-bp reserve requirement ratio (RRR) cut and only short-end issuances from the Bureau of the Treasury (BTr) in April reduced the pressure on longer-tenor yields to move higher,” he added.

Last week, the BSP said it will buy P300 billion worth of government bonds, with a maximum repayment period of six months, to support efforts to cushion the pandemic’s impact on the economy.

Also last week, the central bank said it will cut big banks’ RRR by 200 bps to 12% effective today, unleashing additional liquidity of around P180 billion to P200 billion to support the economy battered by the COVID-19 pandemic.

The BSP slashed big banks’ RRR by a total of 400 bps last year. BSP Governor Benjamin E. Diokno has committed to reduce the RRR to single-digit level by the end of his term in 2023.

The country’s key interest rates now range from 2.75% to 3.75% after a 50-bp cut implemented earlier this month meant to curb a possible economic slowdown due to COVID-19.

Meanwhile, departing from the usual quarterly program, the Treasury also unveiled last week a P190-billion borrowing plan for April focusing on short-ended terms — even reintroducing a 35-day facility — as risk-averse investors stay away from longer-termed securities amid ongoing uncertainties brought about by the pandemic.

Next month’s borrowing plan will consist of P130 billion in Treasury bills (T-bills) and P60 billion in Treasury bonds (T-bonds).

Latest data from the World Health Organization showed that as of March 28, there are around 575,000 confirmed cases and more than 26,000 fatalities across 201 countries.

There are 1,075 COVID-19 cases in the country, with 68 deaths and 35 recoveries, as of the March 28 tally of the Department of Health.

The short end of the yield curve ended mixed after the end of trading last Friday as yields on 91- and 182-day T-bills dropped 0.6 bps and 3.5 bps, respectively, to 3.193% and 3.387%, while 364-day paper rose 8.2 bps to 3.803%.

At the belly, yields on two- and three-year T-bonds climbed 13.3 bps (4.481%) and 3.2 bps (4.568%). On the other hand, rates of the three-, four-, five-, and seven-year T-bonds decreased by 8.4 bps (4.597%), 18.3 bps (4.614%), and 21.6 bps (4.684%), respectively.

The long end of the curve declined as 10-, 20-, and 25-year debt dropped 7.5 bps (4.865%), 25.5 bps (5.036%), and 26.8 bps (5.033%), respectively.

For this week, Mr. Liboro sees yields to be “stabilized” from recent actions from BSP and BTr.

“We expect these actions to help cap further sell-offs in the market. While we see a lot of value at current levels, yields could consolidate over the short-term as market sentiment remains cautious amid lower trading interest and persisting negative sentiment on the COVID-19 virus,” he said.

Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc., expects a “downward pressure may continue” as the virus spread continues.

“The fiscal measures by the government should provide some support on yields once it is actually rolled out completely,” he said.

The government rolled out an initial P27.1-billion economic stimulus package to help distressed sectors while a recently signed stimulus package law allows the government to realign as much as P275 billion from the national budget and make off-budget outlays for COVID-19 relief measures.

Preliminary estimates from the National Economic and Development Authority showed that the Philippine economy might contract this year by as much as 0.6% due to the fallout brought about by the COVID-19 pandemic.