Yields on gov’t debt climb amid sell-off in US bonds

YIELDS rose across the board following a sell-off in US Treasuries (USTs), even as the market is expecting another rate hike from the Bangko Sentral ng Pilipinas (BSP).
Bond yields, which move opposite to prices, rose by an average of 14.97 basis points (bps) week on week, data from the Philippine Dealing & Exchange Corp. as of May 18 showed.
“Local bond yields rose [last] week as 10-year UST continued to rise,” said Ruben Carlo O. Asuncion, chief economist at the Union Bank of the Philippines (UnionBank).
“Yields rose as much as 15 bps on local bonds as investors tracked higher UST last May 15. The following day, local bond yields rose further despite continued sell-off in UST with the 10-year UST reaching around 3.11%, up by another 5 bps from the previous close,” Mr. Asuncion added.
On Friday, the yield on the 10-year US Treasury touched an intraday high of 3.128%, the highest level since July 2011, Reuters reported. It retreated to 3.060% at its closing.
Meanwhile, local investors are also pricing in the possibility of another rate hike by the BSP.
“It is just a reaction from the recent rate hike,” First Metro Asset Management, Inc. (FAMI) said on the rise in yields last week. “The market is still expecting another round of rate hike from the Bangko Sentral ng Pilipinas.”
FAMI said during last week’s auctions, the Bureau of the Treasury (BTr) “gave in to the higher bid of the market.”
Last Tuesday, the government was able to borrow P11.236 billion via Treasury bills (T-bills) out of the P15 billion it offered as investors sought higher returns for the one-year tenor. Full awards were made for the 91- and 182-day T-bills worth P5 billion and P4 billion respectively, fetching average rates of 3.451% and 3.934%.
However, demand was low for the 364-day papers as tenders only reached P3.146 billion versus the P6 billion programmed by the government. The BTr only accepted P2.236 billion from investors, capping bids at 4.35%. The one-year paper was quoted an average yield of 4.226%, higher than the 3.986% seen a week earlier.
The P10-billion offer of reissued seven-year Treasury bonds (T-bond) was also partially awarded, with the BTr only accepting P4.915 billion despite bids reaching P15.007 billion last May 16. The bonds fetched an average rate of 5.865%, higher compared to 5.712% average previously.
At the secondary market, yields on all tenors rose across the board. At the short end of the curve, yields on the 91-, 182- and 364-day T-bills went up by 2.30 bps (to 3.4549%), 8.19 bps (to 3.9140%) and 24.41 bps (to 4.1601%), respectively.
At the belly, rates of the two-, three-, four- five- and seven-year securities climbed by 14.94 bps (to 4.4563%), 6.58 bps (to 4.7311%), 18.39 bps (to 5.6875%), 30.44 bps (to 5.6677%) and 16.06 bps (to 5.9000%), respectively.
At the long end, the 10- and 20-year Treasury bonds saw yields increasing by 21.60 bps (to 6.7446%) and 6.79 bps (to 7.2518%), respectively.
Moving forward, UnionBank’s Mr. Asuncion said market players will continue to track US Treasury yields and as well as other offshore developments.
“Traders are closely monitoring the progress on the latest trade talks between the US and China for signs of a possible breakthrough that could spark a rally in global equities,” he said.
“Also, players will be factoring in four-year high global oil prices aside from the rise in 10-year yields as mentioned,” added Mr. Asuncion.
For FAMI, “[This] week there will be another T-bill auction and [we] guess it will have a higher yield from last week’s auction.” — Lourdes O. Pilar