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Yields on gov’t debt fall

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YIELDS ON government securities (GS) fell last week as investors continued to digest the Bangko Sentral ng Pilipinas’ (BSP) off-cycle half-percentage-point interest rate cut.

Bond yields, which move opposite to prices, went down by an average of 15.4 basis points (bps) on a week on week basis, according to PHP Bloomberg Valuation Service Reference Rates as of April 24 published on the Philippine Dealing System’s website.

“Local yields declined amid the lingering impact of the recent off-cycle 50-bp policy rate cut from the BSP,” a bond trader said in an e-mail response.

The trader added that GS yields fell due to anticipation of weaker inflationary pressures on the back of sharp declines in international oil prices last week.

Separately, ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said the fall in GS yields last week was the third consecutive week since the sell-off seen in March, with the latest interest rate cut from the central bank as the most recent catalyst.

“Broadly, you saw a flattening of the yield curve with yields on longer-tenor securities adjusting the most,” Mr. Liboro said in an e-mail.

The BSP cut policy rates by 50 bps in an off-cycle meeting on April 16 to prod lending activity to the economy in the middle of coronavirus disease 2019 (COVID-19) crisis. It also canceled the scheduled policy meeting on May 21.

These adjustments brought the overnight reverse repurchase rate to 2.75%, as well as the central bank’s overnight deposit and lending rates to 2.25% and 3.25%, respectively.

These rates are the lowest on record and since the BSP shifted to an interest rate corridor in 2016.

The central bank has so far slashed the interest rates by a total of 125 bps this year after the 75 bps in cuts seen in 2019. The latest move completely loosened up the 175 bps hike implemented in 2018 to arrest rising inflation.

Meanwhile, for the first time in history, US oil crude futures sank below $0 per barrel last week due to supply glut brought about by the COVID-19 pandemic.

At the secondary market, GS yields fell nearly across-the-board at the close of trading last Friday. The three-month, six-month and one-year papers went down by 15.7 bps, 22.7 bps, and 21.8 bps, respectively, to 3.079%, 3.163%, and 3.295%.

At the belly, yields on the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) fell by 26.9 bps (to 3.308%), 24 bps (3.371%), 21 bps (3.428%), 18.8 bps (3.488%), and 19.4 bps (3.611%).

Meanwhile, yields at the long end of the curve were mixed as 10-year T-bond decreased by 15.2 bps to 3.763%, while 20- and 25-year debt rose by 5.7 bps and 10.8 bps, respectively, to 4.502% and 4.618%.

For this week’s trading, the bond trader said: “Yields are likely to decline further amid likely steep decline in first-quarter economic growth reports in the United States and Eurozone.”

The trader said the market will also take its cue from the decisions of central banks in the US, Europe, and Japan this week.

“We continue to remain constructive on the prospects for Philippine bonds but given the very solid run we’ve had over the last three weeks, we believe that momentum on the rally could stall for now amid some profit-taking,” Mr. Liboro said.

“Potential supply on long-tenor issuances as the BTr (Bureau of the Treasury) is set to announce its new issuance schedule may prompt investors to lock in some gains in the short-term,” he added. — Lourdes O. Pilar





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