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Yields on gov’t debt dip amid lower inflation

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YIELDS on government securities last week declined, amid a lower-than-expected inflation reading for November.

On a week-on-week basis, yields — which move inversely to prices — dipped on average by 1.24 basis points (bps) according to PHP Bloomberg Valuation (BVAL) Service Reference Rates posted on the website of the Philippine Dealing System on Dec. 7.

“Yields are consolidating near the recent lows after the inflation numbers,” said Deanno J. Basas, president and managing director of ATR Asset Management Trust Corp. (ATRAM Trust).

Michael L. Ricafort, economist at Rizal Commercial Banking Corp. (RCBC), noted long term yields in particular eased in response to last month’s inflation figure. In November, inflation stood at 6.0%, lower than market expectations, after the near decade-high of 6.7% in the previous month.

“Short-term PHP BVAL yields mostly higher by 0.08-0.14, while long-term PHP BVAL yields were slightly lower, down for the 7th straight week, to trade the lowest levels in about 2-2.5 months and already declined by a total of 1.10-1.30 from the near decade-highs posted on October 22, 2018,” he said.

Inflation eased for the first time this year in November but was still faster compared to the 3% recorded in the same month a year ago, data from the Philippine Statistics Authority showed.




The pace was slower than the 6.3% median figure in a BusinessWorld poll, while falling within the 5.8%-6.6% estimated range by the Bangko Sentral ng Pilipinas (BSP).

At the secondary market, gains were almost exclusive to short term debt papers.

The 91-day Treasury bills (T-bills) picked up the most by 13.9 bps to fetch 5.587%. The 182- and 364-day T-bills trailed by climbing 8.2 bps and 1.5 bps, respectively, to finish at 6.299% and 6.617%.

Meanwhile, yields at the belly of the curve dipped except that of the seven-year Treasury bond (T-bond) which added 0.9 bps to close 7.008% compared to a week ago. The rates of the two-, three-, four-, and five-year bonds fell 1.2 bps, 3 bps, 2.7 bps, and 1.3 bps, respectively, ending with 6.726%, 6.835%, 6.909%, and 6.962%.

At the long end, the 10-, 20-, and 25-year bonds decreased by 1.9 bps, 11.7 bps, and 16.3 bps respectively, to 7.010%, 7.495%, and 7.545%.

“Long-term PHP BVAL yields could still continue their easing trend, provided that global oil prices and the US dollar/peso remain relatively stable or lower to support continued easing of inflation,” RCBC’s Mr. Ricafort said.

“Global crude oil prices again declined from 1-week highs and reverted back to the lowest levels in about 13-months after OPEC members have not agreed yet on any cut on oil production output.”

He also cited the lower movement of 10-year US treasury yield stemming from uncertainties over the US-China trade war to possibly affect the yield movements at the local market in the coming weeks.

ATRAM Trust’s Mr. Basas shared the same view, saying: “[T]he move lower in US yields and the inversion of certain parts of the US Treasury curve will be considered.”

“I think we will remain around these levels for the next few weeks as the demand from investors to deploy funds is balanced by supply coming from Treasury and corporate issuances,” Mr. Basas added.

The analysts also noted how market players may be vigilant ahead of the BSP meeting on Dec. 13.

“Locally, market will be watching the BSP meeting [this] week for their forward guidance on interest rate policy,” Mr. Basas said.

For Mr. Ricafort, he does not expect the BSP to raise policy rates during this week’s meeting, after inflation eased in November. — Marissa Mae M. Ramos