Yield Tracker

By Jochebed B. Gonzales
Senior Researcher

DOMESTIC YIELDS rose, closely tracking the movement of US Treasuries (USTs) even as the national government partially awarded bonds at an unexpected higher coupon last week.

Bond prices dipped as yields on government securities ended higher on Friday, increasing by 11.40 basis points (bps) on the average week on week, data from the Philippine Dealing & Exchange Corp. showed.

“Yields went up by 15-37 bps across the curve driven mostly by higher US Treasury yields, which ranged between 2.91% and 2.93% levels [last week] (versus 2.875% area [in the previous week]),” said Carlyn Therese X. Dulay, Head of Institutional Sales at Security Bank Corp.

“The partial acceptance of the new 20-year [fixed income treasury note] issuance, which printed at 6.50% also forced the yield curve to align,” she added.

Helen G. Oleta, Trust Trading Head at Rizal Commercial Banking Corp. (RCBC) agreed, saying: “The local market followed the sideways movement of the 10-year US Treasury.”

“We also saw the awarding [of the 20-year Treasury bonds] a little above market expectation. For the latter part of the week, some end-users were moving the market as well,” she added.

Reaching four-year highs as it touched the 2.95%-level, the yield of the 10-year US benchmark bond traded within a 10-bp range even as last week saw a selloff in equities and the US Treasury raised its supply of government borrowings.

At the domestic primary market, the Bureau of the Treasury (BTr) only awarded P8.853 billion in fresh 20-year bonds against the P20 billion it offered last Tuesday. These securities fetched a 6.5% coupon rate, higher compared to the 5.035% fetched during the last auction of 20-year bonds in June 2017.

“It just shows how the BTr is now amenable to higher rates,” a bond trader said by phone, describing the result as “surprising.”

“Before, their tone is they have room to reject higher bids,” he added. “Now, they started accepting that the levels in the market — the yield curve — have adjusted.”

At the secondary market on Friday, Treasury bonds (T-bond) ended with higher yields week-on-week, led by the four-year note, which surged by 55.47 bps to 5.3036%. It was followed by the five-, seven- and 10-year T-bonds whose yields respectively rose by 16.05 bps, 16.61 bps, and 14.65 bps, finishing with 5.1368%, 6.6232% and 6.8554%.

The 20-year Treasury bond increased by 10.60 bps to yield 6.5628%, while the rates of the two-year and three-year papers climbed by 7.43 bps and 2.10 bps, respectively, to 4.1852% and 4.3003%.

At the short-end of the curve, the yield of the 91-day and 182-day Treasury bills (T-bills) fetched 11.65 bps and 4.61 bps, respectively, to close at 2.9012% and 3.0529%.

Only the yield of the 364-paper saw a decline, shedding 25.16 bps to 3.028%.

For this week, analysts said the market will continue to track US yields.

“Expect market to continue to track USTs and take its cue from the scheduled local T-bill auction with market indications at 5-10 basis points higher,” said Security Bank’s Ms. Dulay.

For RCBC’s Ms. Oleta: “If you follow the 10-year US Treasury, it’s on an uptrend. For the local market, we might be looking for the rate hike by the BSP (Bangko Sentral ng Pilipinas).”