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Gov’t debt yields end flat on policy bets

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YIELD TRACKER

YIELDS ON government securities (GS) were little changed on Friday amid expectations of the central bank keeping its policy settings steady and developments in the United States.

Bond yields, which move opposite to prices, inched up by an average of 0.9 basis point (bp) week on week, based on the PHP Bloomberg Valuation Service (BVAL) Reference Rates as of Jan. 8 posted on the Philippine Dealing System’s website.

Yields moved sideways across the board on Friday. At the short end of the yield curve, rates of the 182- and 364-day Treasury bills declined by 1 basis point and 8.6 bps, respectively, to 1.404% and 1.626%. Meanwhile, the rate on the 91-day debt papers went up by 1.6 bps to 1.133%.

At the belly, the yield on the seven-year Treasury bonds (T-bonds) marginally went down by 0.8 bp to 2.775%, while those on the two-, three-, four-, and five-year debt papers rose by 2.1 bps (1.867%), 5.2 bps (2.129%), 6.7 bps (2.366%), and 5.6 bps (2.559%).

The yield on the 10-year T-bond was unchanged at 2.996% from the previous week. Meanwhile, the rates of the 20- and 25-year papers inched down 0.3 bp (3.962%) and 0.4 bp (3.946%).

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Analysts attributed the yield movements to the market reacting to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno’s dovish comments and the selloff in US Treasuries in reaction to the Democratic Party gaining control of the US Senate.

First Metro Asset Management, Inc. (FAMI) noted that bond yields rallied early in the week following the well-received auction of the reissued 10-year T-bonds.

“Actions reversed and the market turned seller after the yields on the 10-year US Treasuries breached above one percent. Since then, yields in the seven-year space also rose,” FAMI said in an e-mail.

Robinsons Bank Corp. peso sovereign debt trader Kevin S. Palma said Democrats winning control of the US Senate would give President-elect Joe Biden elbow room to push for more spending.

“More government spending could lead to higher inflation and could skew the odds in favor of higher yields,” Mr. Palma said in a Viber message.

The yield on 10-year US bonds, a key global benchmark interest rate, rose above 1% for the first time since March 2020.

Back home, the Bureau of the Treasury made a full award of the reissued T-bonds it offered on Tuesday and even opened its tap facility as the tenor’s yield dropped amid strong liquidity in the market.

The reissued 10-year notes, which have a remaining life of four years and eight months, saw its average rate go down by 36.4 bps to 2.536% from the 2.9% fetched in the Nov. 17 auction.

Meanwhile, Mr. Diokno told the ABS-CBN News Channel last week that benchmark interest rates will remain low “for the next few quarters” to support the pandemic-stricken economy, and that pushing rates below zero is unlikely.

The overnight reverse repurchase, lending, and deposit rates are currently at record lows of 2%, 2.5%, and 1.5%, respectively, following last year’s cumulative cuts worth 200 bps.

Headline inflation accelerated to a 22-month high 3.5% in December, driven by the faster pace of food and transport price increases. This brought the 2020 inflation average to 2.6%, a tad quicker than 2.5% in 2019 but matches the BSP forecast.

For this week, the analysts said the movement of US Treasuries will continue to affect the local market.

“Developments in the US Treasury market will continue to dictate the tempo of trading in the week ahead, but strong interest on the short to belly of the GS curve will persist as the market remains abundant with liquidity,” Robinsons Bank’s Mr. Palma said.

For FAMI, the recent pullbacks provide an opportunity for the market to reposition.

“While we do not discount the upward pressure from US Treasuries’ selloff, this might be offset by added liquidity from the upcoming maturity of FXTN 3-23 [on Jan. 25]. We expect strong demand for short-term papers to be sustained as players park their funds amid lack of catalysts,” FAMI said. — Ana Olivia A. Tirona

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