Yields on gov’t debt rise

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EXPECTATIONS of another rate hike by the US central bank and geopolitical tensions in East Asia sent market players into a mode of caution, pushing yields on local government securities (GS) upwards.

Local debt yields, which move opposite to prices, climbed 6.21 basis points (bps) on average week-on-week, data from the Philippine Dealing & Exchange (PDEx) data as of Sept. 22 showed.

“GS yields rose [last] week primarily because of the US Federal Reserve’s decision to start reducing its balance sheet and its affirmation of another US rate hike before the year ends,” said Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines (Landbank).

For Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, the increase in yields was also on the back of major developments in the local front “such as the progress on the tax reform bill in the Senate and the BSP’s (Bangko Sentral ng Pilipinas) stay of interest rates.”

Local debt yields tracked movements in the global bond market with central banks from developed economies adopting a hawkish stance, a bond trader said.

The BSP kept key rates unchanged last Thursday as expected with inflation being kept in check despite robust economic growth. BSP Governor Nestor A. Espenilla, Jr. said the BSP “continues to be vigilant” against risks to the inflation outlook such as the planned comprehensive tax reform program.

The Fed kept rates unchanged in its latest meeting, but signaled its intentions to raise rates by December as it looks to further reduce its balance sheet. The basis for this decision, the Fed said, were recent readings in unemployment and growth which were considered favorable. The Fed’s decision boosted the greenback’s performance as well as that of US Treasuries while US stock prices fell.

Markets were also spooked on rising tensions in the Korean peninsula with the US and North Korea issuing threats against each other. US President Donald J. Trump likewise announced sanctions on companies that have dealings with North Korea.

At the secondary market, yields on the short-end rallied for the most part, with rates on the 91- and 364-day Treasury bills (T-bills) down 15.5 basis points (bps) and 0.43 bps to fetch 2.7589% and 2.8935%, respectively. The 182-day T-bill, meanwhile, saw its yield go up 1.04 bps (2.5220%).

At the belly, the 4-year Treasury bonds (T-bonds) led the way with a yield increase of 66.37 bps (4.4179%) followed by the 3-year T-bond’s 1.13 bps increase to 3.6429%. On the other hand, rates on the 2-, 5-, and 7-year debt papers went down by 19.29 bps (3.6857%), 4.04 bps (4.5239%) and 2.75 bps (4.3174%).

Lastly, at the long-end, the 10- and 20-year tenors both saw their yields go up 5.69 bps (4.6200%) and 29.86 bps (5.4121%).

“Yields will continue to be pressured [this] week on anxiety over supply risk onshore [Bureau of the Treasury (BTr) 4Q borrowing schedule to be released] and rate hikes by major markets,” the bond trader said.

For Landbank’s Mr. Dumalagan, yields this week are “still expected to rise” due to the “likely upbeat” US data on durable goods orders and second-quarter US economic growth, adding that political uncertainties “might temper” the increase in yields.

This week, markets will be closely watching North Korea’s response to Mr. Trump’s recent statements at the UN General Assembly, said Union Bank’s Mr. Asuncion, referring to Mr. Trump’s speech where he threatened to “totally destroy North Korea,” among others. — ALES





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