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Yields on gov’t debt dip

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YIELDS on government securities (GS) dipped amid lower inflation expectations after the bicameral panel approved the rice tariffication bill last week, putting it a step closer to enactment.

On a week-on-week basis, prices of government securities rose as debt yields declined by 8.57 basis points (bp) on average, according to the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s Web site on Nov. 23.

“The Bangko Sentral ng Pilipinas (BSP) seems to be done with the hiking of interest rates as inflation expectations turn to prices going down… [It] could also be due to supply side factors after rice tariffication got approved,” said Noel S. Reyes, first vice president and chief investment officer at Security Bank Corp.

Nicholas Antonio T. Mapa, senior economist at ING Bank NV-Manila Branch, agreed: “Market is clearly expecting [local] inflation to decelerate in coming months, especially with rice tariff bill passed and oil prices sliding.”

Last week, the House of Representatives and the Senate approved the consolidated version of amendments to Republic Act No. 8178, or the Agricultural Tariffication Act.

In the bill, quantitative restrictions on rice will be replaced by tariffs pooled to a Rice Competitiveness Enhancement Fund tasked to develop the domestic rice industry. Once ratified, the bill will be submitted to the President for signing.

Meanwhile, Rizal Commercial Banking Corp. (RCBC) economist Michael L. Ricafort attributed the increase of yields of the short-term notes to the “continued effects of the +0.25-hike in local policy rates, higher government spending data, some premium for short-term funds that cross the year as part of seasonal window dressing by some of the biggest financial institutions as accounting year-end draws closer.”

“Possible +0.25-Fed rate hike on December 19, 2018 despite more dovish comments by some Fed officials may have also led to some uptick on short-term local interest rates recently,” he added.

Yields on the longer-dated securities were at their lowest levels in 1.5-2 months, Mr. Ricafort noted, “amid prospects of easing inflationary pressures as global oil prices declined to new one-year lows recently and the peso strengthened to the best levels in 5.5 months.”

On last Friday’s closing, yields at the short end were the only papers to manage gains from a week ago. The 91-day debt paper gained the most, rising by 10.4 bps to 5.402%. Rates of the 182- and 364-day Treasury bills also climbed by 6.7 bps to end at 6.171% and 6.599%, respectively.

Meanwhile, yields on the two-, three-, four-, five- and seven-year bonds fell 4 bps, 7.3 bps, 8.9 bps, 9.8 bps, and 12.4 bps, respectively, to close at 6.733%, 6.871%, 6.961%, 7.03%, and 7.111%.

At the long end, Treasury bonds showed significant losses, with the 20-year paper recording the biggest drop of 33.4 bps to finish with 7.811%, while yields on 10- and 25-year bonds declined 20 bps and 22.3 bps to 7.135% and 7.945%, respectively.

Looking forward, RCBC’s Mr. Ricafort sees this downward yield movement to persist in the coming weeks.

“For [this] week, the momentum could continue for the easing of long-term interest rates, provided continued decline in global oil prices among one-year lows and sustained peso appreciation among the best in 5.5 months, as both factors may continue to support easing/lower inflation and inflation expectations.”

“Lower inflation in the coming months could lead to further easing of long-term interest rates, a trend that has been ongoing for a month already,” he added.

Security Bank’s Mr. Reyes also sees a “pretty flat” yield curve except for the short-end which he said might continue to rally. “High yields experienced in October might no longer be revisited,” he said.

For ING’s Mr. Mapa, the coming weeks are expected to “positive for bonds” after “BSP finally sounding dovish and done for the year.” — Marissa Mae M. Ramos