Gov’t debt yields end flat

YIELDS on government debt securities ended flat last week amid a lack of catalysts in the local market.

Debt yields in the secondary market inched down by 2.4 basis points (bps) on average week-on-week, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates as of Aug. 20 published on the Philippine Dealing System’s website.

For the short-dated debt papers, the 91- and 182-day Treasury bills saw their yields fall 4.6 bps and 5.2 bps to fetch 1.191% and 1.437%, respectively. Meanwhile, the yield on the one-year paper inched up by 0.8 bp to 1.787%.

Except for the two-year Treasury bonds (T-bonds), rates of debt papers at the belly all went down. The three-, four-, five- and seven-year T-bonds saw their yields drop by 3.3 bps, 7 bps, 8.8 bps and 6.5 bps, respectively, to 2.15%, 2.273%, 2.389%, and 2.571%. The two-year paper recorded a flat 0.6-bp increase to fetch 2.012%.

For long-dated securities, the rate of the 10-year T-bonds fell by 6.5 bps to 2.639%, while the 20- and 25-year T-bonds increased by 7.9 bps and 6.2 bps, respectively, to yield 3.578% and 3.653%.

“[The market] was generally quiet as investors wait for new catalysts,” a bond trader said in a Viber message.

The bond trader noted the decision of the Bangko Sentral ng Pilipinas (BSP) to hold rates was “widely anticipated” by the market and thus did not have much of an effect on yields.

The BSP’s Monetary Board on Thursday decided to keep the rates on its overnight reverse repurchase, lending and deposit facilities at their record lows of 2.25%, 2.75% and 1.75%, respectively.

The central bank has so far slashed benchmark rates by 175 bps this year to encourage borrowing and lending amid the coronavirus pandemic that plunged economies into recession.

BSP Governor Benjamin E. Diokno had said their policy stance is likely to be on hold for the next few quarters as earlier easing moves were preemptive.

The BSP last week raised the inflation forecast for this year to 2.6% from the 2.3%. The 2021 and 2022 forecasts were also hiked to 3% (from 2.6%) and 3.1% (from 3%), respectively.

“Expect the yields to move sideways with a downward bias especially on the three to 10-year space,” the bond trader said.

“You have the usual month-end period of profit taking, so there could be some upward pressure, but I don’t think it will be much,” the bond trader added.

For Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort: “[Yields on] local interest rate benchmarks would be relatively steady, with some slight downside as has been seen in recent weeks, especially if excess peso liquidity in the financial systems remain.”

“Any further downward movement in the yields have slowed down also in recent weeks as most peso BVAL yields have been mostly well below the inflation rate of 2.7%, thereby resulting in negative net interest rate returns for fixed income investors,” he said in an e-mail.

Mr. Ricafort added that despite the uptrend in domestic inflation, near-zero or negative interest rates in many developed economies have also helped keep local rates at record-low levels.

“[G]lobal fund managers and investors search for higher returns in emerging markets with relatively better economic and credit fundamentals as well as favorable credit ratings such as the Philippines, as better credit ratings also helped reduce the borrowing costs/interest rates in the country,” he said. — J.E. Hernandez