Yields on government debt fall on BSP stimulus

By Carmina Angelica V. Olano
Researcher

YIELDS ON government securities (GS) fell across-the-board last week as traders’ sentiment improved further following the Bangko Sentral ng Pilipinas’ (BSP) decision to buy more debt papers from banks this week.

On average, GS yields went down by 24 basis points (bps) week on week, according to the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website as of April 8.

“Government securities saw steady recovery, coming off the highs supported by BSP’s daily repurchase of front to belly bonds,” the First Metro Asset Management, Inc. (FAMI) said in an e-mail.

“[BSP] bought R3-10, R5-12, and FXTN 7-62 for the previous weeks but [this] week [it] will expand the list of securities,” it added, referring to the bonds’ tenors.

Kevin S. Palma, peso sovereign debt trader at Robinsons Bank Corp., was of the same view: “The GS market…continued to cheer the BSP’s stimulus efforts after it expanded its list of government securities to purchase in the secondary market.”

On March 23, the central bank said it will buy P300 billion worth of short-dated debt from the Bureau of the Treasury under a repurchase agreement to help the government generate additional cash to combat the coronavirus disease 2019 (COVID-19) pandemic. This will be paid within six months at the maximum.

In a statement last Friday, the BSP said it will expand the range of eligible securities that it will buy from the secondary market to cover all peso-denominated papers, “reassuring market participants of demand for GS should they need to liquidate their holdings.”

This one-hour bond-buying window — between 9:30 a.m. to 10:30 a.m. — will remain open until June or “until market conditions return to normal,” the central bank said.

FAMI noted other “supportive” policies implemented by the BSP “helped calm the sell-off” at the start of the Luzon-wide enhanced community quarantine (ECQ) in mid-March.

“The 200-bp RRR (reserve requirement ratio) cut effective April 3, and BSP suspending the term deposit facility have also put downward pressure on local yields,” it said.

Mr. Palma, the peso trader, also noted that reinvestment demand from a P120-billion retail Treasury bond maturing on April 11 pushed local yields lower.

Aside from bond purchases, the central bank also unleashed a series of monetary stimulus under its arsenal last month to inject more cash to the economy currently being battered by the COVID-19 pandemic.

The key rate — the overnight reverse repurchase rate — now stands at 3.25%, reflecting a 50-bp cut on March 19. Overnight deposit and lending rates were likewise slashed to 2.75% and 3.75%, respectively.

It also trimmed the big banks’ RRR by 200 bps to 12% on March 24 to boost lending activities. This move released up to P200 billion into the financial system effective on April 3.

At the secondary market on Wednesday, Treasury bills (T-bills) plunged from week-ago levels, led by the 364-day T-bill which saw a 2.8-bp decline to yield 3.717%. The 91- and 182-day T-bills dipped by 1.3 bps and 1.1 bps to fetch 3.293% and 3.448%, respectively.

Yields at the belly of the curve also decreased. Yields on the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) went down by 37.4 bps (3.935%), 39 bps (3.998%), 36.4 bps (4.073%), 33.7 bps (4.163%), and 35 bps (4.372%).

Yields on longer-term debt papers likewise fell, with the 10-, 20- and 25-year T-bonds yielding 4.537%, 4.911%, and 4.864%, down by 41.5 bps, 14.9 bps, and 21.3 bps.

Financial markets were closed from April 9 to 10 in observance of the Holy Week.

For the week, “Yields may continue to move sideways with slight downward bias but that drop may already be tempered by those who want to reduce their risk positions,” Robinsons Bank’s Mr. Palma said.

“Volatility will likely remain for some time as this is a continuous tug-of-war between hopes and fears over the direction that the COVID-19 will be taking,” he added.

For FAMI, even as volatility risks due to the COVID-19 outbreak remain, it expects yields “to move further south given the large US Federal Reserve and BSP cuts in policy rates in March, better liquidity and expanded BSP bond repurchase as well as lower inflation expectations.”

According to the World Health Organization as of April 11, COVID-19 has claimed close to 100,000 lives among more than 1.6 million confirmed cases across 213 countries.

In the Philippines, there were 4,428 confirmed COVID-19 cases as of April 11 tally of the Health department. Fatalities totaled 247, while recoveries reached 157.