Yields on government debt up on client-driven trades

By Jochebed B. Gonzales,
Researcher

YIELDS on government debt inched higher last week amid thin trading, stirred mostly by trades for shorter-dated papers.

Prices dipped slightly as bond yields climbed by an average of 4.95 basis points (bps) week on week, data from the Philippine Dealing and Exchange Corp. as of Dec. 22 showed.

“Trades [last Friday] were very limited. A number came from client-driven transactions for securities with tenors of five years or less,” said Helen G. Oleta, head of Trust Trading at Rizal Commercial Banking Corp. (RCBC).

“I think everyone’s already on vacation mode as we saw markets were very quiet, across equities and fixed income,” she added.

A bond trader said: “Trading volume slowed during the week with traders focusing on the short-end of the curve but most deals were for clients.”

For Security Bank Corp. Head of Institutional Sales Carlyn Therese X. Dulay, “Yields traded slightly higher [last] week both on US data and US Tax reform expectations, and despite the rejection of the four-year [fixed-rate Treasury notes] auction last Tuesday.“

The Bureau of the Treasury rejected all bids for its P20-billion offer of reissued five-year bonds as it saw weak demand from investors seeking yields higher than the bond’s 4% coupon rate.

National Treasurer Rosalia V. de Leon attributed the rejection to “tight liquidity” after the government’s successful retail bond offering last month, which raised P255.4 billion.

Offshore, expectations of a strengthening US economy were further supported due to strong data releases on Friday. New orders for manufactured durable goods went up by 1.3% month on month to $241.4 billion in November, while personal spending rose 0.6% to $87.1 billion.

Also last week, US President Donald J. Trump signed into law the tax reform bill that reduces income taxes for individuals and corporates, to which Mr. Trump said was “very much a bill for the middle class and a bill for jobs.”

Amid these developments, the yield on the 10-year US benchmark bond reached a nine-month high of 2.504% on Thursday and closed on Friday with 2.4810%.

At the local fixed-income exchange on Friday, the yield on the three-year Treasury bond (T-bond) gained the most, up by 19.36 bps to 4.4436%.

It was followed by the seven- and 10-year T-bonds whose rates respectively rose 14.03 bps and 14.19 bps, finishing at 5.4385% and 5.8269%. The yield on the four-year bond also climbed 12.40 bps to 4.9519%, while that of the five-year Treasury increased by 7.16 bps to 4.7559%.

Meanwhile, Treasury bills saw fewer gains in yields with the 91-, 182- and 365-day papers rising just 5.57 bps, 6.14 bps and 5.88 bps, respectively, to end with 3.1750%, 3.3135% and 3.0782%.

Declines were observed in rates of the two- and 20-year T-bonds which respectively shed 9.02 bps and 26.18 bps to 3.9617% and 5.7339%.

Sought for her outlook, RCBC’s Ms. Oleta said: “We expect very quiet trading for government securities. For now, the focus of the market is to fund the short-term liquidity crunch we’re seeing.”

For Security Bank’s Ms. Dulay, “Expect yields to hold at current levels as trading winds down over the holidays.”