Yields on gov’t debt end flat on BSP rate bets

By Carmina Angelica V. Olano
Researcher

YIELDS ON government securities (GS) traded at the secondary market remained flat last week amid mixed expectations on whether the central bank will cut rates or not as the November inflation print picked up last week.

Debt yields went down at an average 3.3 basis points (bps) week on week, according to PHP Bloomberg Valuation (BVAL) Service Reference Rates published on the Philippine Dealing System’s website on Dec. 6.

“The drop in yields was a result of expectations of a rate cut…[Even] as the November inflation was slightly above consensus, year-to-date inflation was still within the Bangko Sentral ng Pilipinas’ (BSP) range. This fuels hopes that the government will consider doing another round of rate cut,” First Metro Asset Management, Inc. said in an e-mail.

For Jonathan L. Ravelas, chief market strategist at BDO Unibank, Inc., most yields moved sideways to down last week, but the downside was “limited.”

He noted that on Nov. 25, BSP Governor Benjamin E. Diokno hinted that a rate cut is still possible this year.

“These recent statements opened the doors for an expansion. [This is why] yields slightly went down [last week]. But with inflation printed higher…[traders] were on a wait-and-see attitude,” he said.

“The increase from 0.8% in October to 1.3% in November is quite fast. So, baka hindi na sila mag cut. (So, the BSP might decide not to cut rates anymore),” he added.

On the sidelines of the Financial Education Stakeholders Expo at SMX Convention Center in Pasay City on Nov. 25, Mr. Diokno hinted that the Monetary Board (MB) could still slash benchmark interest rates anew in their eighth and last policy review for the year on Dec. 12. if conditions warrant further easing this soon beyond the 75 bps in total cuts done so far this year.

“The BSP will always be data-dependent so we will evaluate…every time we have a policy meeting,” he told reporters.

Last week, the Philippine Statistics Authority (PSA) reported that November headline inflation rate was up from 0.8% in October, albeit slower than the six-percent inflation rate posted in November 2018.

The overall rise in prices of widely used goods averaged 2.5% in the 11 months to November, which came out higher than the BSP’s 2.4% forecast, but still within its 2-4% target range for 2019.

At the secondary market last Friday, the 182- and 364-day Treasury bills (T-bills) dropped by 2.6 bps and 3.8 bps, respectively, to fetch 3.345% and 3.472%. On the other hand, the 91-day debt paper inched up by 0.1 bp, yielding 3.179%.

Rates at the belly and long end of the yield curve fell across the board. The rates on the two-, three-, four-, five- and seven-year Treasury bonds (T-bonds) declined by 0.2 bp (3.789%), 1.9 bps (3.922%), 3.2 bps (4.067%), 3.8 bps (4.218%), and 4.2 bps (4.473%).

The 10-, 20-, and 25-year T-bonds saw its yields went down by 5.7 bps, 5.2 bps, and 6.2 bps, respectively, to 4.684%, 5.231%, and 5.236%.

For this week, FAMI said, “We expect the yield curve to trade sideways to slight upward bias as traders await the result of the BSP Monetary Board Meeting on Thursday.”

For BDO’s Mr. Ravelas, he expects yields to go sideways to down.

“Between [last Friday and this] Thursday, most likely yields will move sideways. If expectations of another rate cut persist, these will go down,” he said.

In terms of the possibility of another rate cut, Mr. Ravelas, however, mentioned that the central bank will “most likely…wait for another inflation print to see if there is a need to cut rates.”

The PSA’s December inflation report is expected to be released in January 2020.