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Yields on gov’t debt decline on central bank’s move

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YIELD TRACKER

YIELDS ON government securities (GS) ended lower last week following a surprise 50-basis-point (bp) cut by the Bangko Sentral ng Pilipinas (BSP) on Thursday.

GS yields dropped by 35.6 bps week on week on average, the PHP Bloomberg Valuation Service Reference Rates as of June 26 published on the Philippine Dealing System’s website showed.

At the secondary market, rates on debt papers declined across-the-board. Yields on the 91-, 182-, and 364-day Treasury bills (T-bills) went down by 2.8 bps, 3.4 bps, and 3.5 bps, respectively, to 2.127%, 2.199%, and 2.563%.

At the belly, yields on the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) decreased by 24.6 bps (2.376%), 26.4 bps (2.483%), 28.2 bps (2.570%), 31.5 bps (2.642%), and 39.9 bps (2.764%).

Rates of the 10-, 20- and 25-year T-bonds were likewise down by 44.1 bps, 79.3 bps, and 108.3 bps to fetch 2.930%, 3.499%, and 3.313%.

“Yields initially shot up by 30-40 bps on the back of the BTr’s (Bureau of the Treasury) five-year auction. However, the BSP’s decision to cut the overnight policy rate by 50 bps at [Thursday’s] Monetary Board meeting has caused yields to rally to fresh year-low levels,” ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said in an e-mail.

Robinsons Bank Corp. Peso Sovereign Debt Trader Kevin S. Palma said in a Viber message that the news was welcomed by the local bond market and “caused massive buying interest across the curve.”

The central bank slashed rates on the BSP’s overnight reverse repurchase, lending, and deposit facilities by 50 bps to new record lows of 2.25%, 2.75%, and 1.75%, respectively. The cut, which took effect Friday, brought total reductions of the BSP this year to 175 bps.

The BSP also said on Thursday it now expects inflation this year and in 2021 to average at 2.3% (from 2.2%) and 2.6% (from 2.5%), respectively.

Headline inflation averaged at 2.5% as of May, lower than the 3.5% recorded in 2019’s comparable five months.

Meanwhile, the BTr borrowed P30 billion in reissued five-year debt papers last Wednesday as the offer was oversubscribed by more than two times, with the total bids at P80.58 billion. The BTr said on Thursday it is looking to borrow P205 billion in July, 21% higher than the P170-billion program in June and May.

The government borrows from local and foreign sources to fund its budget deficit which is now expected to hit 8.4% of gross domestic product.

“Robust demand will persist [this week] as market psychology remains to be in the positive territory all thanks to BSP’s dynamic efforts to safeguard the liquidity in the financial system and foster economic activity,” Robinsons Bank’s Mr. Palma said.

For ATRAM Trust’s Mr. Liboro: “The 50-bp policy cut was significant, and the market reaction [on Friday] has quickly reflected that. With the 10-year yield now trading at 2.7%, we expect the market to consolidate around current levels in the short term.”

“However, given additional bond supply via the BTr’s seven-year and 10-year auction program in July and the possibility of an RTB (Retail Treasury Bond) issuance, we expect yields to gradually adjust higher,” he added.

The BTr is seeking to raise P30 billion via the seven-year T-bonds on July 7 and another P30 billion via the 10-year T-bonds on July 21. — Marissa Mae M. Ramos





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