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Yields on gov’t debt decline

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YIELDS ON government securities (GS) fell across-the-board last week following the central bank’s decision to cut benchmark rates by half a percentage point.

On average, GS yields went down by 36.3 basis points (bps) week on week, according to the PHP Bloomberg Valuation (BVAL) Service Reference Rates as of April 17 published on the Philippine Dealing System’s website.

At the secondary market last Friday, yields were lower than week-ago levels for all tenors. The 91-day Treasury bill went down by 5.7 bps to yield 3.236%. The 182- and 364-day debt papers likewise declined by 5.8 bps and 20.4 bps, respectively, to fetch 3.390% and 3.513%.

At the belly, rates of the two-, three-, and four-year bonds went down by 35.8 bps (3.577%), 38.7 bps (3.611%), and 43.5 bps (3.638%), respectively. Yields on the five- and seven-year papers likewise dropped 48.7 bps (3.676%) and 56.7 bps (3.805%).

Yields on the 10-, 20-, and 25-year notes declined by 62.2 bps, 46.6 bps, and 35.4 bps, to end at 3.915%, 4.445%, and 4.510%.

“Yields were lower [last] week on the widely anticipated but off-cycle 50-basis-point cut in policy rates of the Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno’s announcements on their willingness to act to stem the effects of the coronavirus on liquidity emboldened traders to take positions at better bids,” Security Bank Corp. First Vice-President and Head of Institutional Sales Carlyn Therese X. Dulay said in a mobile phone message last Friday.

“Apart from this, there has also been more optimism as new cases have slowed both in Europe and the US, and as countries begin to discuss slowly relaxing lockdowns in their countries. They have also begun to consider the possibly restarting their economies, and ending the economic shutdown, albeit with conditions…,” she added.

In a separate mobile phone message, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the decline in GS yields “may have come from a high demand from investors.”

“In times like these, investors tend to flock to shorter tenors with ‘cash as king’ in mind,” Mr. Asuncion said.

The BSP cut policy rates by 50 bps in an off-cycle meeting last Thursday in a bid to boost lending as the coronavirus disease 2019 (COVID-19) crisis woes continue.

The cuts brought the overnight reverse repurchase rate to 2.75%. Likewise, interest rates for the BSP’s overnight deposit and lending facility have been trimmed to 3.25% and 2.25%, respectively. These rates are the lowest on record and since the central bank shifted to an interest rate corridor in 2016.

With this move, the BSP has completely unwound the 150 bps in hikes carried out in 2018. For this year alone, it slashed rates by a total of 125 bps following 75 bps in cuts implemented last year.

Meanwhile, Spain, Italy, and France, three of the world’s hardest-hit countries by the pandemic, reported a slowdown in new COVID-19 cases, Bloomberg reported last week. This slowdown would enable governments in Europe to “look for ways to safely ease lockdowns that are strangling the region’s economy.”

“[This] week may be more of the same as the COVID-19 pandemic continuous to influence the markets,” UnionBank’s Mr. Asuncion said moving forward.

COVID-19 has sickened 6,087 in the Philippines, while deaths are tallied at 397, according to data published by the Department of Health last Saturday. — Jobo E. Hernandez





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