Lingering price concerns push up gov’t debt yields

YIELDS ON government securities went up last week as investors stayed defensive due to inflation concerns.
Debt yields climbed 20.55 basis points (bps) on average week on week, data from the Philippine Dealing & Exchange Corp. as of Oct. 19 showed.
At the secondary market on Friday, yields on the 91-, 182- and 364-day Treasury bills (T-bill) went up by 39.42 bps (4.8339%), 1.48 bps (5.6072%) and 26.09 bps (6.2589%), respectively.
Similarly, the three-, four-, five- and seven-year Treasury bonds (T-bond) saw their rates increase by 41.87 bps (7.4133%), 33.59 bps (8.3071%), 38.58 bps (8.5839%) and 28.42 bps (7.9342%), respectively. The two-year debt paper, on the other hand, saw a 15.94-bp decline to yield 7.2964%.
At the long end, the 20-year T-bond rose by 12.58 bps to fetch 9.0546%, while the 10-year paper ended almost flat from the week prior with a 0.64-bp decrease (8.0529%).
“Rates are still on the upside…as [market] expectations [on inflation also] remain on the high side,” said BDO Unibank, Inc. chief market strategist Jonathan L. Ravelas.
Deanno J. Basas, president and managing director of ATR Asset Management (ATRAM) Trust Corp., said markets are “still a bit cautious,” although noting that there are signs of moderating inflation and current yield levels “are encouraging investors to start re-investing.”
Inflation for the third quarter averaged at 6.2%, higher compared to the previous quarter’s 4.8% and third quarter 2017’s 2.7%, according to a report by the Bangko Sentral ng Pilipinas (BSP).
In September, inflation accelerated to a new nine-year high of 6.7%. Year to date, it averaged 5%, which is above the central bank’s 2-4% target range for 2018.
The BSP has tightened rates by a total of 150 bps since May, including back-to-back rate hikes of 50 bps each during their August and September meetings, in order to rein in inflation expectations.
These rate hikes came as inflation maintained its ascent since the start of the year as new taxes kicked in, worsened by surging oil prices and food supply issues exerted pressure on the cost of basic goods.
Malacañang has issued several measures to boost food supply in order to bring down the cost of staple food items like rice, fish, meat and vegetables, as these saw the biggest price spikes in the last few weeks.
The BSP expects full-year inflation to average at 5.2%, with the latest string of interest rate adjustments meant to usher inflation back to the target band next year. Latest estimates show 2019 inflation could clock in at 4.3%, still above target.
BDO’s Mr. Ravelas expects yields to continue to move higher this week: “Investors are waiting for more signs that inflation is going to slow down. In the meantime, wala pa iyon (that isn’t the case) — the rates will continue to rise,” he said.
For ATRAM Trust’s Mr. Basas, yields may edge lower in the next few weeks “helped by peso currency strength.” — Marissa Mae M. Ramos