Yields on government debt end mixed amid virus outbreak

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YIELDS on government securities (GS) ended mixed last week as the market took note of government efforts to contain the impact of the coronavirus disease 2019 (COVID-19). 

On average, GS yields dipped by 2.8 basis points (bps) week on week, based on the PHP Bloomberg Valuation Service (BVAL) Reference Rates as of April 3 published on the Philippine Dealing System’s website.

At the secondary market on Friday, yields on the 91- and 182-day Treasury bills (T-bills) gained 11.3 bps and 7.2 bps, respectively, to 3.306% and 3.459%. On the other hand, the 364-day T-bills went down by 5.8 bps to fetch 3.745%.

At the belly, the yields on the two-, three-, four-, and five-year Treasury bonds (T-bonds) fell by 17.2 bps (4.309%), 18 bps (4.388%), 16 bps (4.437%), and 11.4 bps (4.500%), respectively. Meanwhile, the rate of the seven-year T-bonds rose by 3.8 bps to 4.722%. 

For longer-dated papers, rates of the 10-, 20-, and 25-year T-bonds went up by 8.7 bps (4.952%), 2.4 bps (5.060%), and 4.4 bps (5.077%). 

“Government yields moved flat [last] week as investors continue to digest the joint impact of monetary and fiscal stimulus to bond yields,” a bond trader said in an e-mail.

“Monetary policy stimulus by central banks is expected to drive yields down due to added liquidity in the system. However, fiscal stimulus through increased bond issuances are seen to orient yields higher as new government issuances will increase existing bond supply in the local fixed-income markets,” the trader said.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), attributed last week’s yield movement to lower global crude oil prices and stronger peso exchange rate, adding that “market expectations of further easing of inflation data” may be another factor.

Mr. Ricafort also called measures implemented by the government as “prudent,” which helped prevent local interest rates from going up.

“The national government’s increased cash sources recently have effectively reduced the need to borrow from the local market, thereby partly helping to ease pressure on local interest rates, with less crowding-out effects,” Mr. Ricafort said in a mobile phone message.

Last month, the Bangko Sentral ng Pilipinas (BSP) reduced the reserve requirement ratio for big banks by 200 bps to 12% after cutting key policy rates by 50 bps. 

It also bought three-month government securities worth P300 billion from the Bureau of the Treasury under a repurchase agreement. The central bank said it will ensure liquidity and fund government initiatives to combat the impact of the pandemic on the economy.

Meanwhile, economic managers rolled out a P27.1-billion stimulus package for sectors affected by the COVID-19 outbreak. President Rodrigo R. Duterte also plans to realign around P275 billion of this year’s national budget for the same purpose.

Analysts also expect inflation to have eased further in March as the plunge in oil prices was seen to offset a slight uptick in food prices due to increased demand caused by the enhanced community quarantine in Luzon. 

A BusinessWorld poll of 11 economists conducted last week yielded a 2.3% median estimate for the March headline inflation, which if realized, will be slower than the 2.6% in February and the 3.3% in March 2019.

Inflation data will be reported on Tuesday, April 7, by the Philippine Statistics Authority.

For this week, analysts expect GS yields to move further south given recent developments.

“The local market will likely react toward the downside as any indications of weaker inflation might support views of weakening local economic activity due to the impact of the coronavirus-related restrictive measures,” the bond trader said.

Similarly, RCBC’s Mr. Ricafort said local interest rate benchmarks “could still continue to ease lower” this week following the “recent easing trend” in the bond yields in the US and in other developed economies after the US Federal Reserve pledged to buy government bonds in unlimited amounts to support the economy.

“Other central banks around the world have also increased quantitative easing to keep borrowing costs low. These measures by various central banks globally are designed to mitigate the risks of recession and better deal with the economic fallout largely brought about by COVID-19…,” Mr. Ricafort said.