Yield Tracker

By Lourdes O. Pilar
Researcher

YIELDS ON government securities (GS) traded in the secondary market went down last week amid strong demand as investors continue to look for safer investments.

Bond yields — which move opposite to prices — fell by an average of 10.6 basis points (bps) week on week, according to the PHP Bloomberg Valuation Service Reference Rates as of May 22 published on the Philippine Dealing System’s website.

“[Last] week, we saw more steepening for the GS curve as demand on the short end to belly securities continued to be strong, while the long-end moved sideways to slightly higher. This continues to be because banks continue to stay nimble by staying short,” Carlyn Therese X. Dulay, first vice-president and head of Wholesale Treasury Sales at Security Bank Corp., said in an e-mail interview.

“On the other hand, holders of long duration [papers] continue to derisk as we are still in a risk-off environment due to the COVID 19 (coronavirus disease 2019) pandemic, and the feared negative effects of it in the economy,” she added.

“The current elevated liquidity in the financial system had investors on the lookout for safer and higher-yielding investments across the GS curve. Implications of the auction results in the primary market continue to suggest that bond bulls are still out in the wild,” Kevin S. Palma, peso sovereign debt trader of Robinsons Bank Corp., said in a Viber message.

Last Monday, the Bureau of the Treasury borrowed P24 billion via Treasury bills (T-bills) from total bids of P103.8 billion, five times higher than the initial P20-billion offer.

It also opened its tap facility for P5 billion worth of one-year notes to accommodate the strong investor demand.

Supportive policy actions from the Bangko Sentral ng Pilipinas kept yields on a downward trend, according to National Treasurer Rosalia V. de Leon.

The central bank’s Monetary Board trimmed benchmark rates by a total of 125 bps since the start of the year, the latest of which was the 50-bp off-cycle cut last April.

For this month, the government plans to borrow P170 billion from the local market in weekly T-bill offerings worth P110 billion and P60-billion Treasury bonds (T-bond) to be auctioned off every two weeks.

Yields on all tenors fell across- the-board at the end of trading last Friday. The 91-, 182-, and 364-day T-bills dropped 27.7 bps, 20.1 bps, and 10.6 bps to yield 2.128%, 2.253%, and 2.627%, respectively.

At the belly, the two-, three-, four-, five-, and seven-year T-bonds saw their rates decline by 11 bps (2.736%), 8.4 bps (2.825%), 8.3 bps (2.880%), 8.8 bps (2.931%) and 7.5 bps (3.073%), respectively.

On the other hand, rates of the 10-, 20-, and 25-year debt declined by 2.5 bps, 3.9 bps, and 7.4 bps, respectively, to fetch 3.274%, 4.187%, and 4.288%.

Analysts see the downward trend continuing this week.

“Local bond yields may continue to trend lower but this may already be tempered as we may see a resurgence of profit takers and take advantage of the bullish sentiment by lightening up on their holdings,” Mr. Palma said.

“For this week, expect to see stable demand for the four-year and shorter as cash continues to be allocated in these securities. Demand on the five-year may be limited as market participants wait for the results of the auction on Tuesday,” Ms. Dulay said.

On Tuesday, the Treasury will offer P20-billion T-bills. The following day, it will auction off reissued five-year bonds with a remaining life of four years and four months worth P30 billion.

Local financial markets are closed today in observance of Eid’l Fitr.