Yield Tracker

By Christine J.S. Castañeda,

YIELDS on government securities (GS) traded in the secondary market went down last week amid Bangko Sentral ng Pilipinas’ (BSP) decision to reduce the term deposit facility (TDF) auction volume and North Korea’s missile launch over Japan.

On average, GS yields — which move opposite to prices — fell by 14.73 basis points (bps), data from the Philippine Dealing & Exchange Corp. as of Aug. 31 showed.

“Yields on government securities were down by 5-9 basis points on the short end to the belly [last] week on strong investor demand and as a result of the BSP’s decision to cut TDF auction volume from P140 billion to P110 billion on the 28-day tenor,” said Carlyn Therese X. Dulay, vice-president and head of institutional sales at Security Bank Corp.

“Other factors that influenced lower levels were lower [US Treasuries] on continued geopolitical risks,” she added.

Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines (Landbank), said: “GS yields fell [last] week due to safe-haven buying following the launch of a North Korean missile over Japan. The drop in yields was tempered by upbeat US data on ADP employment and GDP (gross domestic product) growth.”

A bond trader interviewed last Thursday shared their view saying: “[R]ates dipped to track the move of treasuries on risk of tone on North Korea and [US President Donald J.] Trump tweets. Onshore, BSP’s tweak-easing of cutting the TDF volume prompted dealers to snatch up bonds but market trading volume remained heavy on client driven deals.”

Last Wednesday, the central bank reduced the size of the 28-day TDF that will be offered for auction this week on weak demand. Starting Sept. 6, banks can only bid for as much as P110 billion worth of term deposits.

Meanwhile, according to a Reuters report, North Korea fired a missile which passed over Japan’s northern Hokkaido island last week. Mr. Trump issued a statement in response to North Korea’s firing saying “all options are on the table.”

On the other hand, data released last week showed US second-quarter GDP grew 3%, faster than the 2.6% initial estimate.

Also, according to the ADP National Employment Report released last week, US private employers hired 237,000 workers last month, Reuters reported. This was higher than the economists’ estimates of 183,000 jobs added.

At the secondary market on Thursday, in the short end of the curve, the 91-, and 182-day Treasury bills (T-bills) went down by 4.05 bps and 41.82 bps to yield 2.1219% and 2.5189%, respectively. The 364-day paper inched up by 3.20 bps to 2.8930%.

In the belly, yields on the two-, five-, and seven-year Treasury bonds (T-bonds) increased by 4.68 bps (3.8589%), 0.03 bp (4.5907%) and 35.79 bps (4.426%). Meanwhile, yields on the three-, and four-year bonds lost 5.82 bps and 1.68 bps to 3.7479% and 4.1964%.

In the long end, the 10-, and 20-year T-bonds saw their yields increase by 31.94 bps and 34.12 bps to 4.6663% and 5.1677%, respectively.

For this week, Landbank’s Mr. Dumalagan said: “GS yields might recover [this] week due to likely upbeat US non-farm payrolls and more hawkish moves from the ECB [European Central Bank] during its September 2017 policy meeting. The ECB might announce the timeline for the reduction of its bond buying program.”

Security Bank’s Ms. Dulay said on Thursday: “Expect local currency bond yield movement to take its cue from the NFP figure due out Friday, which is expected to print at 180,000, as well as on the results of the upcoming seven-year reissuance with market expecting 4.4-4.5%.”

The US Labor Department reported on Friday that non-farm payrolls increased by 156,000 last month.

Meanwhile, the government will offer P15-billion worth of reissued seven-year Treasury bonds with a remaining life of six years and seven months at an auction tomorrow.