Yields on gov’t debt flat

By Christine J. S. Castañeda, Senior Researcher
YIELDS on government securities (GS) traded in the secondary market were flat last week over inflation results, the retail Treasury bond (RTB) offering, and developments abroad.
On average, GS yields — which move opposite to prices — grew by 2.59 basis points (bps), data from the Philippine Dealing & Exchange Corp. as of June 8 showed.
“Higher US yields, higher CPI (consumer price index) data and additional supply from the retail Treasury bond offering caused yields to inch slightly higher [last] week,” Carlyn Therese X. Dulay, head of institutional sales at Security Bank Corp., said.
A bond trader interviewed last Friday noted yields tracked the “still elevated inflation print from PSA (Philippine Statistics Authority), while BSP (Bangko Sentral ng Pilipinas) Governor remains hawkish.”
For Land Bank of the Philippines (LANDBANK) market economist Guian Angelo S. Dumalagan: “GS yields increased [last] week due to better-than-expected US labor reports and hawkish expectations on the policy meetings of the US Federal Reserve and the ECB (European Central Bank).The US central bank is expected to hike rates again by another 25 bps, while the ECB is expected to discuss plans to taper its €30 billion monthly purchasing program.”
“The increase in yields was capped by last month’s weaker-than-expected domestic inflation and renewed geopolitical concerns ahead of the meeting between the US and North Korea and among G7 members,” he added.
In a report released last week, the PSA said that inflation rose to 4.6% in May, the fastest in at least five years. This was slower than the 4.9% median in a BusinessWorld poll which was also the estimate given by the Department of Finance. May’s pace matched the floor of the BSP’s 4.6-5.4% estimate range for the month.
Meanwhile, the government raised P121.77 billion from the sale of three-year RTBs maturing in 2021 at a coupon rate of 4.875%.
At the secondary market on Friday, in the short end of the curve, the 91-day and 182-day Treasury bills (T-bills) went down by 49.27 bps and 1.54 bps to yield 3.2680% and 3.6216%, respectively. The 364-day paper increased 6.08 basis points to 4.1787%.
In the belly, yields on the two-, three-, and four-year Treasury bonds (T-bonds) increased 2.74 bps (4.4488%), 9.07 bps (4.7915%), 46.18 bps (5.4214%). Yields on the five- and seven-year T-bonds also went up by 24.81 bps and 0.67 bps to 5.7020% and 5.7800%, respectively.
In the long end, the 10-, and 20-year T-bonds saw their yields go down by 0.17 bps and 12.68 bps to 6.0783% and 7.0857%.
For this week, Ms. Dulay said yields are expected to “remain rangebound to slightly higher, in anticipation of more supply of bills and bonds as well as the upcoming Fed rate decision.”
For his part, LANDBANK’s Mr. Dumalagan said: “[This] week, GS yields are still expected to rise amid likely upbeat US inflation data and possible hawkish moves or remarks from the US Federal Reserve and the ECB. Geopolitical concerns may continue to temper the increase in yields.”
“Yields will take their cue from US treasuries and RTB issuance settlement for direction,” a bond trader said.