YIELD TRACKER

YIELDS ON government securities declined last week amid lingering effects of the surprise half-percentage-point cut by the Bangko Sentral ng Pilipinas (BSP).

Debt yields, which move opposite to prices, went down by 18.9 basis points (bps) on average week on week, the PHP Bloomberg Valuation Service Reference Rates as of July 3 published on the Philippine Dealing System’s website showed.

“The biggest driver for the downward move in yields this week was the BSP’s unexpected decision to cut the key rate by 50 bps [on June 25],” Carlyn Therese X. Dulay, first vice-president and head of Wholesale Treasury Sales at Security Bank Corp., said in an e-mail.

“This caused market players to chase good yield given the big slash in the policy rate and as a result, the whole GS curve moved down by around 60-70 bps from levels prior to the BSP decision,” Ms. Dulay said.

“Dealers/investors scrambled for safe-haven assets. The rally was evident across the curve with some series even exceeding 50 bps drop since June 25,” a bond trader said in a separate e-mail.

In a surprise move, the central bank on June 25 trimmed benchmark rates by 50 bps to record lows to prop up the economy amid gloomy prospects brought by the coronavirus pandemic.

Overnight reverse repurchase, deposit and lending rates now stand at 2.25%, 1.75%, and 2.75%

“Much of the rally is on the short end of the curve with abundant liquidity still coming into play,” said Ms. Dulay.

“It looks like banks still have a lot of cash to park and as a result, the two-year [debt] and below are trading sub 2% and the three- to five-year [papers] sub 2.25%, while the rest of the curve is seeing relatively thinner volumes. Banks may not yet take in longer duration heavily as pandemic concerns are still present and further BSP intervention becomes less likely given the drastic measures they have already taken,” she added.

At the secondary market last Friday, yields on nearly all benchmark tenors were lower than week-ago levels, except for the longer 20- and 25-year bonds, which increased 8.9 bps and 34.6 bps, respectively, to 3.588% and 3.659%.

Yields on 91-, 182-, and 364-day Treasury bills declined by 30 bps, 32.6 bps, and 61.5 bps, respectively, to fetch 1.827%, 1.873%, and 1.948%.

Rates of the two-, three-, four-, five- and seven-year Treasury bonds (T-bonds) also went down by 28 bps (to 2.096%), 27.8 bps (2.205%), 25.9 bps (2.311%), 21.9 bps (2.423%) and 12.3 bps (2.641%) respectively.

Yield on 10-year T-bond likewise dropped by 11.6 bps to 2.814%.

For this week, Ms. Dulay expects rates of short tenors to “remain contained with cash ready to come in after any upward movement in yields.”

“This behavior may extend to the belly of the curve (five-year sector) as well. Beyond this tenor, there is a probability that yields may follow an upward trend given the supply coming in this month, particularly of seven- and 10-year bonds,” added Ms. Dulay.

For the bond trader, “we see yields to move sideways with a downward bias as the market will try to position itself ahead of the 10-year bond auction. Also, expect the market to take its cue from the latest CPI (consumer price index) data.”

Last Friday, the Bureau of the Treasury announced that it will issue on July 7 fresh P30-billion 10-year bonds, instead of the seven-year paper reissuance.

The Philippine Statistics Authority will report June inflation data on Tuesday, July 7. — Lourdes O. Pilar

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