YIELDS ON government securities (GS) ended flat last week after the Bangko Sentral ng Pilipinas (BSP) said it will keep an accommodative policy over the next two years as well as the recent outcome of the retail Treasury bond (RTB) offering.

Debt yields, which move opposite to prices, inched up by 0.1 basis point (bp) on average week on week, the PHP Bloomberg Valuation Service Reference Rates as of July 17 published on the Philippine Dealing System’s website showed.

“Market was initially seeing some buying interest at the start of the week as the central bank said it will maintain easy policy for the next two years to jump-start economic activities,” First Metro Asset Management, Inc. (FAMI) said in an e-mail interview.

“Action reversed following auction results for the new five-year RTB with bids advancing most in the belly area,” FAMI said in an e-mail interview, adding that there was “good pickup for the issuance.”

“Yields were broadly unchanged over the week as the upward pressure from liquidity needs for the latest retail treasury bond offering was offset by renewed safe-haven bond demand amid the escalation of geopolitical tensions between the United States and China.” a bond trader said in separate e-mail interview.

In an interview with Bloomberg on Tuesday, BSP Governor Benjamin E. Diokno said that for at least two years, it will keep its bond-buying and liquidity support programs to accommodate the economy. This signal came after the central bank chief said there’s space to adjust policy further but there’s no need to trim key rates in the coming quarters.

The central bank’s Monetary Board last month decided to cut policy rates on the overnight reverse repurchase, lending, and deposit facilities by 50 bps to new record lows of 2.25%, 2.75 and 1.75%, respectively.

This brought cumulative reductions this year to 175 bps as the BSP looks to support the economy against COVID-19.

Meanwhile, investors flocked the government’s latest five-year RTB last Thursday as it raised a total of P192.75 billion at a 2.625% rate. The auction was met by total bids reaching P278.572 billion, nine times more than the P30-billion initial offering, prompting the Bureau of the Treasury to hike the award.

Last week, Reuters reported that the Trump administration is contemplating an action that would create more tensions to their relations by banning all members of the Chinese Communist Party and their families from traveling to the United States.

Moreover, in response to China’s national security law, President Donald J. Trump directed to put an end to Hong Kong’s special economic treatment which led to China accusing the US saying it was “gangster logic.”

At the secondary market, yields on the 91-, 182-, and 364-day T-bills went down by 10.8 bps, 7.5 bps, and 4.1 bps respectively, to fetch 1.587%, 1.660%, and 1.838%.

Yields at the belly of the curve went up except for the 7-year T-bonds which recorded a marginal decline of 0.1 bp to 2.574%. Rates on two-, three-, four-, and five-year debt papers increased by 2.9 bps (2.048%), 4.6 bps (2.189%), 4.5 bps (2.297%), and 3.3 bps (2.396%), respectively.

At the long end, the 10-year debt paper dropped by 4.1 bps, yielding 2.722%. On the other hand, yields of the 20- and 25-year went up by 9.2 bps and 3.2 bps, respectively, to 3.681% and 3.742%.

For this week, FAMI anticipates GS yields “to correct some more as the market digests the results of the 5-year retail bonds issuance.”

For the bond trader: “Local yields are seen to move higher as expectations of upbeat United states and Eurozone manufacturing reports might revive optimism of a brief recovery in global economic activity.”

“Moreover, lingering domestic liquidity demand for the latest RTB issuance might also exert some upward pressure on yields,” the bond trader added. — Jobo E. Hernandez