Gov’t debt yields end flat

By Christine J. S. Castañeda,
Senior Researcher

YIELDS on government securities (GS) traded in the secondary market were flat last week due to developments in the US, namely jobs data, change in the Federal Reserve leadership and the Federal Open Market Committee (FOMC) meeting.

On average, GS yields — which move opposite to prices — were down by 1.78 basis points (bps) week on week, data from the Philippine Dealing & Exchange Corp. as Feb. 2 showed.

“Yields fell [last] week likely because of caution ahead of key US labor data tonight and amid the change in Fed leadership,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank).

“Despite the overall downward bias, yields picked up today perhaps because of continued expectations of more US rate hikes ahead. The Fed during its meeting [last] week gave a more upbeat outlook on inflation,” he added.

For his part, Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines said: “There was largely an upward bias during most of the week. I guess, it was the anticipation of the release of the FOMC statement that made the difference all week.”

A bond trader interviewed last Friday said: “Two way interest seen in the bond market as sellers took their cue from Treasury yields rising while bargain hunting was the theme for the session.”

“The partial award for T-bills (Treasury bills) forced dealers to the secondary market but gains were capped with investors now very worried about Tuesday’s Philippine inflation report and Thursday’s BSP (Bangko Sentral ng Pilipinas) meeting,” the bond trader said.

US non-farm payrolls rose by 200,000 in January while unemployment rate was unchanged at 4.1%, the Bureau of Labor Statistics reported last Friday.

Meanwhile, in its January meeting, the FOMC kept interest rates unchanged, with the benchmark rate still at 1.25-1.5%. This was also the last meeting of Janet L. Yellen who will be replaced by Jerome H. Powell.

At the secondary market on Friday, in the short end of the curve, the 91-, and 364-day T-bills went down by 49.94 bps and 14.48 bps to yield 2.3773% and 2.8991%, respectively. The 182-day paper, meanwhile, rose by 23.36 bps to 3.1375%.

In the belly, the yield on the two-year Treasury bond (T-bond) dropped 37.44 bps to 3.8113%. Meanwhile, yields on the three-, four-, five-, and seven-year T-bonds increased by 3.84 bps (4.1959%), 0.79 bps (4.4636%), 8.16 bps (4.7666%) and 29.10 bps (5.7146%).

In the long end, the 10-, and 20-year bonds saw their rates increase by 16.72 bps and 2.14 bps to 6.2093% and 6.3750%, respectively.

For this week, Landbank’s Mr. Dumalagan said: “Despite, the unexpected drop in yields [last] week, yields are still projected to climb as a trend in the coming days, as investors divert their attention to the hawkish tone of the Fed.”

“Expectations of higher domestic inflation could also push yield higher, although some investors might stay cautious ahead of the monetary policy meeting of the BSP,” Mr. Dumalagan added.

UnionBank’s Mr. Asuncion said: “After the FOMC statement, the market now awaits the anticipated January inflation figure and I expect inflation to be higher than usual due to various upward pressure factors. Yields may feel more downward pressure [this] week.”

The Philippine Statistics Authority is scheduled to report January inflation data tomorrow.