Yields on government debt end mixed on profit taking

YIELDS ON government securities (GS) ended mixed last week amid remarks from the central bank chief that current policy rates are appropriate as well as speculations of an additional bond issuance.

On average, GS yields rose by 1.7 basis points (bps) week on week, according to the PHP Bloomberg Valuation (PHP BVAL) Service Reference Rates published on the Philippine Dealing System’s website as of June 5.

“Local bond yields rose slightly week-on-week as profit takers outnumbered bargain hunters… [Bangko Sentral ng Pilipinas (BSP)] Governor Benjamin E. Diokno’s pronouncements that the central bank is currently satisfied with the policy rate have led bond holders to reduce risk positions,” Kevin Palma, peso sovereign debt trader of Robinsons Bank Corp., said in a Viber message.

“The upward pressure in local yields was further exacerbated by speculations that the government may issue a jumbo-bond after the BTr (Bureau of the Treasury) stated that it is currently gauging market demand,” he added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the movement was “amid improved global market risk appetite or less demand for safe havens such as US Treasuries” after economies reopened from lockdowns.

“The healthy upward week-on-week correction in most long-term PHP BVAL yields also came after the record budget deficit data and the latest developments on the economic stimulus bill that would require more funding requirements by the government, partly through the issuance of more government securities…,” Mr. Ricafort said in an e-mail.

Mr. Diokno said in a Bloomberg interview on Wednesday that he is “happy where the current policy rate is” and negative interest rates are “out of the question.”

The Monetary Board has cut benchmark interest rates by 125 bps to this year while big banks’ reserve requirement ratio was trimmed by 200 bps.

Meanwhile, National Treasurer Rosalia V. de Leon last week said they were monitoring developments and the “risk return tolerance of investors” as the BTr eyes a possible jumbo bond issue or another sale of retail Treasury bonds.

The government in April posted a budget deficit of P273.9 billion, a reversal of the P86.9-billion surplus it logged a year ago. The Treasury said spending doubled that month to P461.7 billion as it financed the first tranche of the P200-billion Social Amelioration Program, the P50-billion wage subsidy program and the P36-billion “Bayanihan Grant” to local government units.

On the other hand, the House of Representatives passed on Thursday on third and final reading a P1.3-trillion stimulus package called the ARISE (Accelerated Recovery and Investments Stimulus for the Economy) bill which targets funding for the health sector and government programs for students, workers, and micro, small and medium enterprises amid the pandemic.

At the secondary market on Friday, the 91-, 182-, and 364-day Treasury bills ended lower by 0.8 bp, 1.5 bp, and 5.8 bps, respectively, to 2.072%, 2.171%, and 2.454%.

Most bonds at the belly of the curve also declined, with the two-, three-, four-, and five-year Treasury bonds (T-bonds) losing 4.4 bps (2.496%), 2.5 bps (2.582%), 1.7 bp (2.657%), and 1.3 bp (2.743%), respectively. On the other hand, the seven-year debt gained 2.4 bps to yield 2.973%.

At the long end, the 10-, 20- and 25-year debt papers rose 11.2 bps, 19 bps, and 3.7 bps, respectively, to fetch 3.267%, 4.139%, and 4.261%.

“For [this] week, healthy upward correction in some long-term interest rate benchmarks (PHP BVAL yield) could still continue, especially if US government bond yields continue their upward correction amid improved global market risk appetite and recent gains in the US stock markets…,” RCBC’s Mr. Ricafort said.

“An offsetting factor is the slight easing in inflation to 2.1% in May 2020… [that] could still provide some leeway to cut the local policy rates on the next monetary policy-setting meeting on June 25…” he added.

Robinsons Bank’s Mr. Palma also sees the inflation print and the all-time high unemployment rate of 17.7% giving the BSP policy space to ease its rates.

Inflation eased to a six-month low of 2.1% in May due to tempered demand during the lockdown, the Philippine Statistics Authority (PSA) reported on Friday.

The PSA also said the unemployment rate surged to 17.7% in April from 5.1% a year ago, the fastest since the government adopted new definitions for its labor force survey in 2005.

This translated to 7.25 million jobless Filipinos during that period, more than three times than the 2.27 million a year ago.

“With these, local yields may continue to trade range-bound with downward bias on bargain hunting,” Mr. Palma said. — Marissa Mae M. Ramos