Yields on gov’t debt end flat as market trades RTBs

YIELDS ON government securities (GS) ended flat last week as market players traded the newly listed five-year retail Treasury bonds (RTB) and on news of the central bank funding state debt.

Bond yields, which move opposite to prices, were unchanged on average from the previous week, based on the PHP Bloomberg Valuation Service Reference Rates as of Aug. 14 published on the Philippine Dealing System’s website.

“Despite the flat week-on-week yields movement, market turned active once again after daily trading volume reached P40 billion on Aug. 13, for the first time in over a month, on newly listed RTB 5-13 trades — closing the week 7.8 bps (basis points) lower since its listing date,” First Metro Asset Management, Inc. (FAMI) said in an e-mail.

“Buying interest also reemerged for the FXTN 10-65 (10-year bonds) after it was reissued above market expectations, ending the week at 2.604%, down 12 bps from 2.724% awarded rate during the auction,” it added.

Meanwhile, a bond trader attributed the movement to investors welcoming hints from government officials on easing the lockdown in Metro Manila and nearby provinces beyond Aug. 18.

“However, the rise in yields was capped after data from the Bureau of the Treasury (BTr) indicated that the Bangko Sentral ng Pilipinas (BSP) bought almost half of local government debt issuances last July,” the trader said in an e-mail.

“The recent BSP action…was adopted by advanced economies right after the 2008 Global Financial Crisis as a way to influence long-term yields lower by purchasing government securities. This is highly seen to provide an accommodative lending environment which is pivotal to economic recovery,” the trader added.

On Aug. 7, the Treasury ended the three-week public offer for the RTBs after it raised a record P516.3 billion — P488.5 billion in fresh funds and P27.8 billion in switch subscriptions.

These bonds carry a coupon rate of 2.625% and were issued last Wednesday. They were also listed on the Philippine Dealing & Exchange Corp.

Meanwhile, the Treasury fully awarded reissued 10-year debt last Tuesday, raising P30 billion as planned and even opening the tap facility for P10 billion more to take advantage of strong investor demand and low rates.

Bloomberg reported on Wednesday the central bank purchased about P800 billion or 45% of government debt as of July, citing data from the Treasury.

Around P300 billion were obtained directly from the government while the P500 billion were bought from the secondary market, according to the report. The Treasury has yet to confirm the data.

The Monetary Board in March authorized the central bank to buy P300 billion in government securities from the Treasury via a repurchase agreement with a maximum repayment period of six months to boost the government’s war chest against the coronavirus disease 2019 (COVID-19).

Funding government debt has also been done by other emerging economies like Indonesia as the public sector scrambles to finance their COVID-19 response.

At the close of trading on Friday, GS yields ended mixed compared to Aug. 7 as rates of the 91-, 182-, and 364-day Treasury bills went down by 5.1 bps, 4.6 bps, and 1.1 bps, respectively, to finish at 1.237%, 1.489%, and 1.779%.

At the belly, the yield on the two-year Treasury bond (T-bonds) slipped by 0.3 bp to 2.006%, while rates of the three-, four-, five-, and seven-year T-bonds increased by 4 bps (2.183%), 7.8 bps (2.343%), 9.6 bps (2.477%), and 5.1 bps (2.636%).

The 10-year debt also rose by 1.1 bps to yield 2.704%, while the 20- and 25-year papers fell 8.9 bps (3.499%) and 7.4 bps (3.591%).

Both market participants see the yields this week being influenced by the Monetary Board meeting on Thursday, Aug. 20, even as BSP Governor Benjamin E. Diokno said last week there are “no compelling reasons” for further rate cuts at this time.

The central bank has cut policy rates by 175 bps so far this year, putting the rates of the overnight reverse repurchase, lending, and deposit facilities at record lows of 2.25%, 2.75 and 1.75%, respectively.

The bond trader, however, said escalating US-China geopolitical tensions and uncertainty on lockdown decisions may weaken yield gains.

“We see liquid five-year and 10-year securities to trade on slight downward bias,” FAMI said. — Marissa Mae M. Ramos