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Gov’t debt yields decline

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Yield Tracker

YIELD 010719

By Christine J.S. Castañeda
Senior Researcher

YIELDS on government securities (GS) went down in the first trading week of the year amid lower inflation prospects.

GS yields — which move opposite to prices — dipped by an average of 11.28 basis points (bp) week-on-week, according to the PHP Bloomberg Valuation Service Reference Rates as of Jan. 4 published on the Philippine Dealing System’s Web site.

“The shortened work week opened with inflation forecasts below the 6%, pushing local yields lower on improved inflation prospects in the coming months,” said Nicholas Antonio T. Mapa, senior economist at ING Bank N.V.’s Manila branch.

“Friday’s inflation data release confirmed the downtrend in price gains, helping boost demand of fixed income assets to close out the week,” Mr. Mapa added.

For his part, Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, said: “The securities market has been actually performing well and has been considered to be one of the world’s best performers at the moment. Externally, there is expectation that the [US Federal Reserve] could reverse its policy tightening before the end of this year.”

“These factors may have been making government securities attractive and consequently increasing demand for such. Thus, driving yields downward,” Mr. Asuncion added.

Headline inflation eased to 5.1% in December, data from the Philippine Statistics Authority showed. This was slower than the 6% recorded in November but was faster than the 2.9% logged in the same month last year.

December’s print was the slowest pace since May’s 4.6%. The latest inflation figure was also lower than the 5.7% median in a BusinessWorld poll but fell within the 5.2%-6% estimate given by the Bangko Sentral ng Pilipinas (BSP).

For 2018, inflation averaged 5.2% — faster than the BSP’s 2-4% target range and the highest since 2008’s 8.2%.

At the secondary market on Friday, the 91- and 182-day Treasury bills were the only papers to post gains from a week ago, as their yields rose 7.7 bps and 2.3 bps, respectively, to close at 5.853% and 6.537%.

Meanwhile, the rate of the 364-day Treasury bills declined by 1 bp to 6.773%.

At the belly, yields on the two-, three-, four-, five-, and seven-year bonds fell 14.4 bps (6.741%), 17.3 bps (6.803%), 20.3 bps (6.813%), 21.9 bps (6.818%), and 19.1 bps (6.87%), respectively.

At the long end, the 10- and 20-year Treasury bonds also saw their yields decline by 12.8 bps and 11.7 bps, respectively, to end with 6.937% and 7.374%. The 25-year bond lost 15.6 bps to fetch 7.372%.

Moving forward, UnionBank’s Mr. Asuncion said: “I am expecting that yields would further go down as the external environment plays out as what global markets are expecting.”

“The performance of the local bourse may be a critical indicator moving forward,” he added.

For ING’s Mr. Mapa: “Market players will likely look to M3 (domestic liquidity) data to in the coming sessions while also looking to global developments for further direction.”