Yields on gov’t debt rise

YIELDS on government securities (GS) traded in the secondary market rose slightly last week amid geopolitical concerns abroad.
On average, GS yields inched up by 1.1 basis points (bps) week on week, data from the Philippine Dealing & Exchange Corp. as of June 1 showed.
“GS yields just moved sideways [last Friday] amid geopolitical concerns abroad and mixed US economic data,” said Land Bank of the Philippines (LANDBANK) market economist Guian Angelo S. Dumalagan via an e-mail.
“The US and China are again imposing higher tariffs on each other, while Italy is navigating through a tough political situation, which could determine the future relationship of the country with the EU (European Union),” he said.
Last week, the Trump administration said it will proceed with plans to impose tariffs on $50 billion worth of Chinese goods and restrict Chinese investment in the United States after their announcement of a temporary truce a couple of weeks ago.
Meanwhile, political issues in Italy concerned investors as the populist party Five Star Movement showed their exit plan from the EU. As such, fears are growing that the new election would effectively constitute a referendum on whether the third-largest economy in the euro zone should stay within in the single-currency bloc.
On a positive note, the US Bureau of Labor Statistics reported late last week that non-farm payrolls increased by 223,000 in May, exceeding the 188,000 market expectation, while the unemployment rate edged down to 3.8%, the lowest in 18 years.
Back home, at the secondary market, the 91-day Treasury bills (T-bills) ended with the highest yields last week, climbing 37.2 bps to fetch 3.7607%. The 364-day T-bill also saw its rate rise by 7.1 bps to 4.1179%. Increases were also logged in yields on the two- and three-year papers, adding 16.9 bps to 4.4214% and 9.3 bps to 4.7008%, respectively.
On the other hand, the four-year Treasury bond (T-bond) rallied as its yield declined by 22.9 bps to 4.9596%. The 182-day T-bills also shed 13.4 bps to close at 3.637% last week.
The five-, seven-, 10-, and 20-year tenors also saw their rates go down by 5.3 bps (5.4539%), 7.1 bps (5.7733%), 3.2 bps (6.08%) and 8 bps (7.2125%), respectively.
For this week, LANDBANK’s Mr. Dumalagan said: “GS yields are still expected to trend with an upward bias amid expectations of stronger domestic inflation in May 2018.”
“While inflation is expected to fall back within the BSP’s (Bangko Sentral ng Pilipinas) 2% to 4% range next year, it will definitely remain elevated for the rest of 2018, with inflation likely hitting 5% last month,” he added.
The Philippine Statistics Authority will report official inflation data tomorrow.
Mr. Dumalagan added that yields might go up as the June 14 policy meeting of the US Federal Reserve draws closer.
“Predictive models suggest an above 90% chance of a US rate hike in June 2018,” Mr. Dumalagan said. — Ranier Olson R. Reusora