Yields on gov’t securities show mixed movements

By Jochebed B. Gonzales,
Senior Researcher

DOMESTIC YIELDS saw mixed movements last week as market players took cues from data releases in the US even as they factored in the temporary shutdown of the federal government.

Prices rose as yields on government securities (GS) dipped by an average of 2.97 basis points (bps) week on week, data from the Philippine Dealing and Exchange Corp. as of Jan. 19 showed.

“Yields fell this week by 2.96 bps due to mixed US data on retail sales and inflation as well as safe haven buying amid fears of a US government shutdown from a possible failure to pass a short-term spending bill,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank).

US headline inflation picked up 2.1% year on year last December from 2.2% in the previous month while core inflation, which excludes volatile prices of food and energy, was up 1.8% from clipping 1.7% in November. Retail sales expanded by 5.4%, closing with a strong growth of 4.2% for the entire 2017.

In other news, the US government has been on a shutdown after Republican and Democratic lawmakers failed to pass the federal funding bill on a Friday midnight deadline. Until a deal is reached between the two opposing parties, wherein at least 60 of the 100 senators must vote in favor of the bill, most government workers will be placed on unpaid leave.

Meanwhile, the local GS market saw more demand on shorter-dated securities than those in long-end whose yields tread higher last week.

Security Bank Corp. Head of Institutional Sales Carlyn Therese X. Dulay noted of the gains in yields on medium- to long-term debts.

“Government securities yields traded slightly higher this week in line with higher UST (US Treasury) yields as influenced by the possibility of more Fed hikes this year as well as more debt issuances to fund the US’ widening deficit,” she said.

A bond trader also agreed, saying: “Profit taking ensued at the end of the week due to Bangko Sentral ng Pilipinas Gov. Nestor A. Espenilla, Jr.’s comments that the coming board meeting might be an interesting one in terms of assessing the appropriateness of the current policy rates.”

He added that volume traded was “better” as it reached P21.6 billion on Tuesday, and averaged more than P10 billion during the rest of the week.

At the secondary market on Friday, the yield of the 182-day Treasury bill (T-bill) shed the most, by 38.08 bps week on week to end with 2.8960%. It was followed by the 364-day T-bill whose yield decreased by 35.32 bps to 2.7983%.

The yield 91-day paper also slid by 7.42 bps to 2.2077%, while that of the two- and three-year treasuries dipped 5.20 bps and 8.06 bps, respectively, to close at 3.9015% and 4.1514%.

On the other hand, double-digit gains were observed on the yields of the four-, seven, 10- and 20-year bonds as they increased by 11.22 bps, 16.28 bps, 15 bps and 19.62 bps, respectively, to finish with 4.9354%, 5.4807%, 5.9450% and 5.9714%.

The yield of the five-year bond fetched 2.30 bps to 4.7359%.

“Expect yields to stay within range this week as market continues to wait for more direction and ahead of the new 3-year FXTN issuance [this] week (FXTN 3-23) with market expecting it to print at 4.25-4.375%,” said Security Bank’s Ms. Dulay.

For Landbank’s Mr. Dumalagan: “Yields might correct upwards amid likely firm Philippine growth data and possibly hawkish signals during the ECB (European Central Bank) monetary policy meeting.

Weaker US data on existing US home sales might limit the rise in yields.”

The Bureau of the Treasury will offer P20 billion worth of three-year bonds on Wednesday, the same day the Philippine Statistics Authority will release results of the fourth quarter and full year 2017 gross domestic product.