Government debt yields end flat as market searches for new leads

YIELDS ON government securities (GS) moved sideways last week as investors remain on the lookout for fresh leads amid lack of clear direction for a rate hike next month.
GS yields rose by an average of 1.67 basis points (bps) week on week, data from the Philippine Dealing and Exchange Corp. as of April 20 showed.
“Yields were still moving within range while investors continue to wait for more solid leads,” said Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines (UnionBank).
“Expectations are mixed about a possible rate hike from the BSP (Bangko Sentral ng Pilipinas). On one side, the economy is overheating, thus, a case for tightening soon. The other side see the inflation upward pressure merely transitory, therefore a hike may be coming later rather than sooner,” Mr. Asuncion said alluding to the upcoming Monetary Board meeting on May 10.
For Land Bank of the Philippines (LANDBANK) market economist Guian Angelo S. Dumalagan: “GS yields moved sideways this week, with a slight upward bias, as upbeat assessments from the BSP and some US Federal Reserve officials pushed yields higher, despite safe-haven buying amid the decline in equities and lingering geopolitical concerns abroad.”
In its first quarter inflation report released last week, the BSP said the current monetary policy settings “are seen to be appropriate given the prevailing outlook for inflation and economic activity” but also noted that “economic growth remains solid enough to absorb some policy tightening if warranted.”
Market players also took their cue last week from statements made by Boston Federal Reserve President Eric S. Rosengren who expressed optimism for the US economy. The alternate member of the Federal Open Market Committee (FOMC) said he expects a tighter labor market coupled with faster inflation, and that “tightening may end up being needed than is currently reflected in the projected median for the federal funds rate.”
Meanwhile, other investors focused on domestic auctions by the national government as well as movements of Treasuries abroad. Last Monday, the Bureau of the Treasury (BTr) fully awarded P5-billion worth of 91-day Treasury bills (T-bills) that fetched an average yield of 3.493%, up from the 3.346% quoted at the auction a week prior.
On the other hand, demand for the 182- and 364-day papers were P3.33 billion and P3.3435 billion, below the offers of P4 billion and P6 billion, respectively. However, the Treasury only awarded P2.080 billion and P1.735 billion worth of the said tenors which were respectively quoted with an average yield of 3.684% and 3.83%
The following day, the BTr raised P10 billion from reissued 10-year bonds after they were fully awarded with an average yield of 6.213%.
“Government bond yields ended higher by 3 to 5 bps across the board on higher and partial auction awards,” said Carlyn Therese X. Dulay, Head of Institutional Flows Desk at Security Bank Corp.
Meanwhile, a bond trader said GS yields continued to track US Treasuries, rising on expectations of faster inflation, adding that US President Donald J. Trump’s “risk on, risk off tweets” also contributed to last week’s yield movement.
At the secondary market last Friday, the yield of the 91- and 364-day T-bills respectively rose 10.45 bps and 7.32 bps to close at 3.4761% and 4.2625%. On the other hand, the 182-day paper ended lower by 30.85 bps week on week, yielding 3.6111%.
Yields at the belly of the curve that moved up were of the three-, four-, five- and seven-year T-bonds, which increased by 1.31 bps (4.5998%), 4.44 bps (5%), 8 bps (5.3098%) and 0.69 basis point (5.7512%), respectively. The yield of the two-year paper went down by 3.38 bps to 4.2073%.
At the long end, the yield on the 10-year T-bonds climbed 19.04 bps to 6.2404% while that of the 20-year bond inched down by 0.35 basis point to 7.0929%.
“I see more of the same [yield movements this] week as the market is seemingly waiting for the first week of May when decision time for the BSP happens,” UnionBank’s Mr. Asuncion said when asked for his outlook.
For Security Bank’s Ms. Dulay: “With more auctions scheduled this week, expect yields to [move] range-bound to slightly higher depending on the outcome of the 20-year reissue scheduled Tuesday.”
LANDBANK’s Mr. Dumalagan, for his part, said: “[Y]ields are expected to move sideways with an upward bias, tracking the increase in US Treasury yields last Friday evening amid easing concerns over the flattening of the US yield curve.”
“The upward bias in yields, however, might be capped by lingering geopolitical concerns abroad and views that the European Central Bank and Bank of Japan policy meetings might be less hawkish than previously expected.”
The economist likewise noted uncertainties in the geopolitical front such as the lingering US-China trade war and the question of how Russia will respond to US-led missile attacks in Syria and recent sanctions imposed by the US on Russian companies.
“Caution ahead of Friday’s first-quarter US GDP growth report may also limit the rise in yields,” he said. The US economy is expected to grow 2% in the first quarter, lower than the previous quarter’s expansion of 2.9%, but higher than the 1.2% gain in the first quarter of 2017. — Gillian M. Cortez