YIELDS ON government securities (GS) dipped slightly last week as market players took profit after the Bangko Sentral ng Pilipinas’ (BSP) kept its key rates but revised upwards its inflation outlook in the near term.
GS yields edged down by 2.7 basis points (bps) on average week on week, based on the PHP Bloomberg Valuation Service Reference Rates as of Dec. 18 published on the Philippine Dealing System’s website.
Yields on government papers declined across the board on Friday except for the 91-day paper, which went up by 2.1 bps to fetch 1.146%.
Rates of the 182- and 364-day Treasury bills, meanwhile, inched down by 0.9 bp to fetch 1.434% and 1.723%, respectively.
At the belly of the curve, yields on the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) decreased by 3.9 bps (to 1.891%), 3.8 bps (2.15%), 2.6 bps (2.374%), 1.7 bps (2.56%), and 2.3 bps (2.808%), respectively.
At the long end, the 10-, 20-, and 25-year T-bonds saw their rates go down by 2.3 bps, 6 bps, and 7.7 bps to 2.984%, 3.894%, and 3.878%, respectively.
“While policy rates are expected to be unchanged, BSP’s upward revision on average inflation outlook…led to profit taking — belly securities pared some earlier gains in the week but managed to be supported by buyers,” First Metro Asset Management, Inc. (FAMI) said in an e-mail.
Aside from the profit taking, FAMI said the 10-year bond — originally issued in December 2010 — that matured on Dec. 16 infused P26.2 billion in liquidity into the market, also contributing to the week’s slight yield decline.
“Both the US Federal Reserve and the BSP will keep their accommodative stance until we [see] some substantial developments in the economy and that resulted to investors hunting for bargains in the bond market thus the drop in local bond yields week-on-week,” Robinsons Bank Corp. peso sovereign debt trader Kevin S. Palma said in a Viber message.
The BSP on Thursday kept its benchmark interest rate steady, a move widely expected amid the recent uptick in inflation alongside some signs of economic recovery.
In its seventh and final policy-setting meeting for the year, the Monetary Board maintained the rates on the central bank’s overnight reverse repurchase, lending and deposit facilities at all-time lows of 2%, 2.5%, and 1.5%, respectively.
The central bank cut rates by a cumulative 200 bps this year, the latest of which was the 25-bp reduction during its November meeting.
Meanwhile, the BSP upgraded its average inflation forecast to 2.6% (from 2.5%) for 2020 and 3.2% (from 2.7%) for 2021.
The consumer price index rose by 3.3% in November, the fastest in 21 months, mainly on the back of a quicker increase in food prices as a string of strong typhoons hit Luzon.
On the other hand, the BSP’s inflation outlook for 2022 was retained at 2.9%.
With the shortened trading week, FAMI expects the market to “move sideways with an upward bias” in the coming days.
“Activity in the bond market may struggle to find some traction with investors possibly sitting on the fence ahead of the holidays,” Mr. Palma said. — M.A.P. Soliman