Yields decline on inflation data, US election

YIELDS ON government securities (GS) moved south as local bonds tracked US Treasuries after the Philippines’ headline inflation print in October remained within market expectations.

GS yields, which move opposite to prices, went down by an average of 2.5 basis points (bps) week on week, based on the PHP Bloomberg Valuation Service Reference Rates as of Nov. 6 published on the Philippine Dealing System’s website.

At the secondary market on Friday, rates at the short end of the curve dropped, with the 91-, 182-, and 364-day Treasury bills losing 3.4 bps, 4.8 bps, and 4.4 bps, respectively, to 1.106%, 1.503%, and 1.777%.

At the belly, yields on the two-, three-, four-, five-, and seven-year Treasury bonds fell by 3.2 bps (2.039%), 3.4 bps (2.291%), 2.6 bps (2.531%), 2.5 bps (2.725%), and 1.3 bps (2.925%).

The rate of the 10-year debt picked up by 1.5 bps to fetch 2.992%. Meanwhile, other long-dated tenors such as the 20- and 25-year notes declined by 3.2 bps and 0.7 bp, respectively, to finish at 3.921% and 3.908%.

“Local bond yields trended lower as market players hunted for bargains on select territory of the curve after inflation in October printed well-within expectations,” Robinsons Bank Corp. peso sovereign debt trader Kevin S. Palma said in a Viber message last Friday.

“Dealers and investors alike also took cue from lower US Treasury yields mainly due to waning optimism that a larger fiscal stimulus will be passed in the US amid the high degree of uncertainty surrounding the election,” Mr. Palma added.

First Metro Asset Management, Inc. (FAMI) said in an e-mail: “US Treasuries bull-flattened after the Blue Wave scenario did not pan out and sentiment somewhat spilled over to the local space as 5-10 year securities were seen lifted.”

FAMI also noted that upside risks to inflation “remain subdued.”

Headline inflation in October increased to 2.5%, the fastest pace in three months or since the 2.7% logged in July, preliminary data released by the Philippine Statistics Authority on Thursday showed.

The latest figure was quicker than the 2.4% median estimate in a BusinessWorld poll. However, it still fell within the 1.9-2.7% expected by the Bangko Sentral ng Pilipinas (BSP) Department of Economic Research for October.

Inflation averaged at 2.5% in the first 10 months of the year, versus the BSP’s 2-4% target as well as its 2.3% forecast.

Meanwhile, on the external front, the trading week ended with the US still awaiting the results of its presidential election as five swing states were not finished going through ballots.

US President-elect Joe Biden declared it was “time to heal” a deeply divided America in his first speech after prevailing on Saturday in a bitter election, even as President Donald Trump refused to concede and pressed ahead with legal fights against the outcome, Reuters reported.

Mr. Biden’s victory in the battleground state of Pennsylvania put him over the threshold of 270 Electoral College votes he needed to clinch the presidency, ending four days of nail-biting suspense and sending his supporters into the streets of major cities in celebration.

Mr. Trump, who was golfing when the major television networks projected his rival had won, immediately accused Mr. Biden of “rushing to falsely pose as the winner.”

Mr. Trump has filed a raft of lawsuits to challenge the results but elections officials in states across the country say there has been no evidence of significant fraud, and legal experts say Mr. Trump’s efforts are unlikely to succeed.

Before the election, Mr. Trump refused to commit to a peaceful transfer of power if he lost, and he falsely declared victory long before counting was complete.

The networks’ declaration for Mr. Biden came amid concerns within Mr. Trump’s team about the strategy going forward and pressure on him to pick a professional legal team to outline where they believe voter fraud took place and provide evidence.

When Mr. Biden enters the White House on Jan. 20, the oldest person to assume the office at age 78, he likely will face a difficult task governing in a deeply polarized Washington, underscored by a record nationwide voter turnout.

The US economy remains technically in recession, and prospects are bleak for a return to work for millions, especially in service industries such as hospitality and entertainment, where job losses hit women and minorities particularly hard.

For this week, analysts expect the release of the Philippine third-quarter gross domestic product (GDP) data on Tuesday to be one of the major catalysts for trading.

“[T]his will provide policy makers more data points to ponder in the coming Monetary Board meeting on Nov. 19. The GDP data, along with developments in the US Presidential Elections, will dictate the tempo of local yields this week. Interest in short term debt securities will persist given all lingering uncertainties we have in our plates as of now,” Robinsons Bank’s Mr. Palma said.

For FAMI: “We see the two-way interest to continue as some players reposition ahead of the Monetary Board meeting. Local bond yields might move downwards and will take a cue from the release of third-quarter GDP…”

“A worse-than-expected figure on Tuesday will increase the chances of another rate cut from BSP on Nov. 19,” it added.

A BusinessWorld poll of 19 economists last week bared a third-quarter GDP median forecast of a 9.2% decline, easing from the 16.5% contraction posted in the second quarter.

If realized, this would result in an 8.8% fall in GDP for the first three quarters of the year, worse than the government’s -4.5% to -6.6% forecast. — Marissa Mae M. Ramos with Reuters