Yields on gov’t debt mixed

YIELDS ON government securities ended mixed last week after the Bureau of the Treasury rejected all the bids for the reissued 10-year bonds.

Bond yields, which move opposite to prices, inched down by an average of 0.3 basis point (bp) week on week, according to the PHP Bloomberg Valuation Service Reference Rates as of Sept. 25 published on the Philippine Dealing System’s website.

“Upward pressure on yields seen in the previous weeks have tapered off as some players repositioned mostly on the belly of the curve” after the Bureau of the Treasury (BTr) rejected all the bids for the reissued 10-year papers, First Metro Asset Management, Inc. (FAMI) said in an e-mail.

“With the 10-year bids rejected, players turned to the market to deploy funds which were supposedly for the said paper. Interest was not solely in the 10-year papers but in the whole belly to 10-year bucket,” it said.

The Treasury on Tuesday did not award any 10-year papers even as tenders reached P44.507 billion. This, as investors sought higher yields as they expect the central bank to keep its current policy settings unchanged in the near term. The bonds fetched an average rate of 3.329% during the auction, 60.5 bps higher from the 2.724% quoted for the tenor on Aug. 12.

“The strong traction on the 10-year bond is an indication of safe-haven demand for longer-term notes from investors as local economic prospects largely remain uncertain in the near term,” a bond trader said separately in an e-mail.

“Sentiment also improved on BSP’s (Bangko Sentral ng Pilipinas) guidance that rates will remain low amid the fight against pandemic — in line with the recent dovish commentary from the Federal Reserve,” FAMI said.

After its two-day policy meeting this month, the Federal Reserve signaled that US interest rates should be kept at near-zero until 2023.

BSP Governor Benjamin E. Diokno said in an interview with ANC News Channel last Monday that the central bank may maintain the low interest rate environment in the next two years to support the economy amid the coronavirus pandemic.

Benchmark interest rates are at record lows of 2.25%, 2.75%, and 1.75%, respectively, for overnight reverse repurchase, lending, and deposit facilities. The central bank has trimmed rates by a total of 175 bps this year.

Yields on the 91- and 182-day Treasury bills dropped by 6.1 bps and 1.2 bps from the previous week, respectively, to 1.149% and 1.513%. Meanwhile, the 364-day papers inched up by 0.9 bp to 1.841%.

Rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) declined by 5.4 bps (to 2.147%), 4.1 bps (2.397%), 3 bps (2.598%), 2.7 bps (2.749%), and 1.2 bps (2.91%).

At the long end, the 10-, 20-, and 25-year T-bonds increased by 2.5 bps, 10.6 bps, and 6.2 bps, respectively, to fetch 3.021%, 3.928%, and 3.916%.

“Yields might increase [this] week amid broad market expectations that the BSP will keep its monetary settings unchanged in its policy meeting [on Oct. 1],” the bond trader said.

Aside from the upcoming policy meeting, FAMI said market players might also stay on the sidelines as they await the Treasury’s October borrowing plan and September inflation data.

“If central bank’s tone will remain dovish and inflation surprises on the downside, yields will likely continue on its downward trend towards year-to-date lows,” FAMI said.

Inflation eased to a three-month low of 2.4% in August, bringing the year-to-date average to 2.5% — within the BSP’s 2-4% target range albeit slower than the 2.6% forecast this year.

The Philippine Statistics Authority will release the September inflation report on Oct. 6. — Jobo E. Hernandez