Yield Tracker

YIELDS ON government securities edged up last week as the Philippine economy exited recession and after the central bank revised its inflation outlook upwards.

Bond yields, which move opposite to prices, rose by 5.05 basis points (bps) on average week on week, based on PHP Bloomberg Valuation Service Reference Rates as of Aug. 13 published on the Philippine Dealing System’s website.

A bond trader attributed the increase to the Philippine economy’s double-digit growth in the second quarter, as well as the upward revisions in the Bangko Sentral ng Pilipinas’ (BSP) inflation forecasts.

“The optimism brought by the positive GDP (gross domestic product) reading and the upward revisions in the BSP inflation projections have strengthened views among market participants of potentially higher bond yields in the near future as the local economy continues on its path toward recovery despite the risks posed by the COVID-19 Delta variant,” the bond trader said in an e-mail.

Meanwhile, First Metro Asset Management, Inc. (FAMI) said local bond yields faced upward pressure even as Philippine economic output has shown “sequential weakness” and rising Delta variant cases continue to threaten recovery prospects, as recent data releases in the US support the case for the Federal Reserve’s tapering, citing strong July jobs as well as producer price index data.

“Players were seen selling across the curve including long positions as US Treasuries drift higher ahead of Jackson Hole Symposium and September meeting. Fed is expected to provide more clues on whether the normalization will begin in late 2021 or early 2022,” FAMI said in a Viber message.

The Philippine economy ended five consecutive quarters of contraction after posting a 11.8% year-on-year growth in the April-June period, the highest reading since 12% in the fourth quarter of 1988 and coming from a low base the year before. This brought the first half growth print to 3.7%, still below the government’s 6-7% target.

Stripping out seasonal factors, however, the Philippine economy slipped by 1.3% quarter on quarter.

Meanwhile, the BSP on Thursday maintained its policy settings for a sixth consecutive meeting, warning that the fresh strict lockdowns in Metro Manila and some provinces could dampen economic recovery.

However, the central bank revised its inflation outlook this year to 4.1% —exceeding its 2-4% target range — from 4% previously, amid a weakening peso and higher crude and non-oil prices.

The BSP also hiked its inflation forecast for 2022 and 2023 to 3.1% from 3%.

On the other hand, US nonfarm payrolls increased by 943,000 in July, the largest increase since August last year, Reuters reported, beating the 870,000 jobs forecast. Year to date, US has created 4.3 million jobs.

The US producer price index also jumped by a record 7.8% year on year in July, Reuters reported separately. Month on month, the index increased by 1%.

On Friday, local yields increased except for those on the 91- and 364-day papers, which declined by 0.43 bp and 0.18 bp, respectively, to fetch 1.1069% and 1.6401%. Meanwhile, the yield on the six-month debt went up by 1.31 bps to 1.4091%.

At the belly of the curve, rates of the two-, three-, four-, five, and seven-year bonds rose by 1.46 bps, 3.41, bps, 5.55 bps, 8.24 bps, and 12.05 bps, respectively, to 1.9017%, 2.2477%, 2.5877%, 2.9377%, and 3.5569%.

The long-dated papers also increased as yields on the 10-, 20-, and 25-year notes climbed by 3.31 bps (to 3.9211%), 10.55 bps (4.8828%), and 10.33 bps (4.8618%).

For this week, FAMI said yields will continue to track the movement of global bonds.

“The reissuance of the 20-year paper (FXTN 25-11) will also test investors’ appetite and sentiment,” FAMI added.

The Bureau of the Treasury will offer reissued P35 billion worth of 25-year papers with remaining life of 19 years and 26 days on Tuesday.

“Local yields might move with an upward bias, amid broad market expectations of more hawkish cues from the minutes of the latest Federal Reserve policy meeting,” the bond trader said.

“This upside could also find support from potentially encouraging GDP growth reports from Japan and the Eurozone, which will fortify the global economic recovery narrative,” the trader added. — Abigail Marie P. Yraola