Debt yields slip as market consolidates

YIELDS on government securities (GS) were mixed last week as the market consolidated ahead of the release of key US and Philippine economic data.

GS yields, which move opposite to prices, inched down by 0.92 basis point (bp) on average week on week, based on PHP Bloomberg Valuation Service Reference Rates data as of Sept. 5, published on the Philippine Dealing System’s website.

At the short end, the rates of the 91-, 182-, and 364-day Treasury bills (T-bills) declined by 5.52 bps, 7.86 bps, and 6.58 bps week on week to 5.1769%, 5.3135%, and 5.4699%, respectively.

Meanwhile, at the belly, yields climbed across all tenors. The rates of the two- three-, four-, five- and seven-year Treasury bonds (T-bonds) rose by 0.71 bp (to 5.6269%), 1.78 bps (5.7086%), 2.9 bps (5.7816%), 3.5 bps (5.8445%), and 2.88 bps (5.9299%), respectively.

Lastly, at the long end, the 10-, 20-, and 25-year debt saw their rates go down by 1.46 bps (to 6.0014%), 0.3 bp (6.3354%), and 0.2 bp (6.3348%), respectively.

GS volume traded was at P63.87 billion on Friday, significantly lower than the P86.05 billion recorded a week earlier.

Noel S. Reyes, chief investment officer for Trust and Asset Management Group at Security Bank Corp., said in the Viber message that the GS market mostly consolidated at the start of the week following the Bureau of the Treasury’s (BTr) bond auction and as investors awaited the release of key US jobs data.

“This was due to a good run so far of yield movements the previous week and a correction of US bond yields that also gave some influence. Midweek, we saw some recovery and buying that lasted until the end of the week given increased confidence for a US rate cut this month from a cooling labor sector,” Mr. Reyes said.

Alessandra P. Araullo, chief investment officer at ATRAM Trust Corp., added in a Viber message that yield movements last week were mostly driven by positioning.

“The August CPI (consumer price index) print came in broadly as expected, comfortably within the BSP’s (Bangko Sentral ng Pilipinas) 2-4% target band, underscoring a still-benign inflation environment despite a modest pickup from July. On the supply front, the Bureau of the Treasury successfully raised P30 billion through its seven-year reissuance, with strong participation reflecting sustained investor appetite and improving confidence in local macro fundamentals,” Ms. Araullo said. “Taken together, these developments anchored sentiment and helped steady the curve, with market players treating the week’s moves more as positioning opportunities rather than a shift in underlying expectations.”

“Attention remains centered on the US labor market. The upcoming NFP (nonfarm payrolls) release will be key in shaping the Federal Reserve’s policy trajectory, and by extension, emerging market bond flows. A softer-than-expected print could reinforce rate cut expectations and extend support to local bonds, while a stronger print may reintroduce volatility via a repricing of US yields.”

The BTr on Tuesday raised P30 billion as planned from its offer of reissued 10-year bonds, that have a remaining life of seven years and 13 days at an average rate of 5.939%.

Meanwhile, Philippine headline inflation quickened to a five-month high of 1.5% in August from 0.9% in July, the government reported on Friday.

This was slower than 3.3% in the same month a year ago and was within the BSP’s 1%-1.8% forecast. It also marked the sixth straight month that the CPI was below the central bank’s 2-4% annual target.

For the first eight months, inflation averaged 1.7%, matching the BSP’s forecast.

On the other hand, US job growth weakened sharply in August and the unemployment rate increased to nearly a four-year high of 4.3%, confirming that labor market conditions were softening and sealing the case for a Federal Reserve interest rate cut later this month, Reuters reported.

Nonfarm payrolls increased by only 22,000 jobs last month after rising by an upwardly revised 79,000 in July, the US Labor department’s Bureau of Labor Statistics said on Friday. Economists polled by Reuters had forecast payrolls would rise by 75,000 jobs after a previously reported gain of 73,000 in July.

Revisions to the establishment survey data also showed payrolls declined by 13,000 jobs in June, the first drop since December 2020, rather than rising by 14,000, as had been reported last month.

Financial markets expect the Fed will deliver a quarter-percentage-point rate cut at its Sept. 16-17 policy meeting, with two more such moves at its remaining two meetings in 2025. The central bank has kept its benchmark overnight interest rate in the 4.25%-4.5% range since December.

For this week, Mr. Reyes said GS yields may continue to move with a downward bias.

“Inflation, though higher than expected, remains within the government’s 2-4% comfort range. Furthermore, our local bond market would continue to be influenced by the first policy cut of the Fed in two weeks given the weakness in all their key job indicators,” he said.

Ms. Araullo added that yield movements could be driven by the BTr’s T-bond offering this week as this will test the market’s appetite for duration. The Treasury will auction off P30 billion in reissued seven-year T-bonds on Tuesday that have a remaining life of four years and 10 months.

“Additionally, a sizable P288-billion bond maturity will inject fresh liquidity into the market, which may further fuel demand across the curve,” she said.

“However, investors should remain cautious of potential inflation surprises and renewed global volatility from fiscal or trade-related headlines. These dynamics suggest that while the near-term backdrop is supportive, positioning should remain nimble, with an eye on both domestic supply conditions and offshore catalysts.” — Abigail Marie P. Yraola with Reuters