YIELDS ON government securities (GS) closed flat last week following data showing a benign September inflation print.

GS yields inched down by an average of one basis point (bp) on a week-on-week basis, based on the PHP Bloomberg Valuation Service Reference Rates as of Oct. 9 published on the Philippine Dealing System’s website.

This resulted in mixed yields across-the-board week on week at the end of trading on Friday.

The rates of the 91- and 182-day Treasury bills (T-bills) increased by 4.2 bps and 1 bp to 1.177% and 1.589%, respectively, while the yield on the 364-day T-bills decreased by 2.6 bps to 1.827%.

Yields on the two-, three-, four-, and five-year Treasury bonds (T-bonds) declined by 3.6 bps (2.042%), 3.5 bps (2.272%), 1.8 bps (2.476%), and 0.3 bps (2.644%). Meanwhile, the seven-year bond ended flat at 2.812%.

At the long end of the curve, the 10-year T-bonds rose by 8 bps to 2.912%, while 20- and 25-year debt fell by 9.4 bps (3.793%) and 3.2 bps (3.842%), respectively.

“The two-way interest seen at the start of [last] week turned to profit-taking bias as the market looks for a clearer catalyst in the short-term. Bids were defensive after the September inflation print, which came just in line with expectations, failed to drive buying interest,” First Metro Asset Management, Inc. (FAMI) said in an e-mail.

“Inflation printed in line with market expectations and was largely a non-event,” ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said in a separate e-mail.

Inflation eased for the second straight month in September to its slowest level in four months on the back of moderating prices in the heavily weighted food and nonalcoholic beverages, the Philippine Statistics Authority (PSA) reported on Tuesday.

Preliminary PSA data showed headline inflation stood at 2.3% in September, the slowest since May’s 2.1%. The result was also down from the 2.4% pace in August, but higher than 0.9% print in September 2019.

The latest reading, which matched the median estimate of 2.3% in a BusinessWorld poll, fell within the Bangko Sentral ng Pilipinas’ (BSP) 1.8%-2.6% forecast range for September.

Inflation averaged at 2.5% in the first nine months. This was higher than the BSP’s revised forecast of 2.3% for 2020 but within its 2-4% target for the year.

Investors flocked the T-bills on offer on Monday, pushing yields lower, as they chose to park their excess cash in short-termed papers following expectations of a slower September inflation print.

This prompted the Bureau of the Treasury (BTr) to borrow P22 billion via the T-bills, higher than the original P20-billion program, as bids surged nearly fivefold to P98.858 billion.

On Tuesday, the BTr made a full P30-billion award of reissued three-year papers with a remaining life of two years and 11 months as its rate fell after the release of September inflation data.

The Treasury also opened its tap facility to borrow P15 billion more from the three-year as bids reached P114.488 billion.

For this week, a bond trader said the yield curve might continue to move sideways amid heightening political uncertainty in the United States due to the upcoming November elections as well as likely tepid US retail sales and consumer confidence data.

“With lack of near-term catalysts and upcoming [five-year bond] auction in the third week of October, we expect the market to continue trading light with more upward bias in the belly to the long end of the curve,” FAMI added.

“With the jumbo [five-year] RTB (retail Treasury bonds) trading close to par once more, we could see some sellers lightening positions prior to the auction,” ATRAM Trust’s Mr. Liboro said.

“However, barring an increase in probability of additional cuts to the reserve requirement rate, sentiment is likely to remain neutral over the short-term,” he added. — M.A.P. Soliman