YIELD TRACKER

YIELDS ON government securities (GS) inched up last week after the November inflation print jumped to a near two-year high.

GS yields — which move opposite to prices — rose by a week-on-week average of 3.9 basis points (bps), data from Philippine Dealing System’s website as of Dec. 4 showed.

Rates on benchmark tenors increased last Friday from week-ago levels, except for those on the 91- and 364-day Treasury bills (T-bills), which declined by 1.1 bps and 0.3 bp, respectively, to 1.12% and 1.701%.

Meanwhile, the yield on the 182-day T-bills edged up by 0.2 bp to 1.43%.

At the belly of the curve, yields on two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) rose by 4.5 bps (to 1.957%), 3.6 bps (2.226%), 1.9 bps (2.462%), 1.1 bps (2.650%), and 3 bps (2.868%), respectively.

At the long end, the 10-, 20-, and 25-year papers yielded 3.028%, 3.948%, and 3.961%, up by 8.7 bps, 9 bps, and 12.7 bps, respectively.

“Yields adjusted higher by 3-5 basis points on initial knee-jerk selling with the upside surprise in CPI,” ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said in an e-mail interview, referring to the consumer price index used to measure inflation.

“However, investors are discounting the print as transitory due to the recent typhoon and there was no follow through on the selling pressure with trading volumes staying relatively muted,” he added.

“At current levels, the market is essentially back to the levels it had been at prior to the most recent Bangko Sentral ng Pilipinas (BSP) policy cut in November,” Mr. Liboro said.

A bond trader said in a mobile phone message that recent developments on coronavirus vaccine candidates caused market players to shift to riskier assets such as equities.

“This puts upward pressure on bond yields, which are already at low levels, and is ripe for some profit taking,” the trader said.

Inflation quickened to a 21-month high of 3.3% last month from 2.5% in October and 1.3% in the same month last year amid faster upticks in the prices of heavily weighted food and non-alcoholic beverage items.

Inflation has averaged 2.5% so far this year, still within the BSP’s 2-4% target and the government’s updated 2.4-2.6% projection this year. However, this is higher than the central bank’s forecast of 2.4%.

BSP Governor Benjamin E. Diokno said on Friday that the increase in November inflation is “transitory” after the food supply disruptions caused by the recent typhoons that battered the country.

Mr. Liboro said the next local catalyst will be the seven-year bond auction — the last offering for the year — on Dec. 17.

“While the market has taken the upside CPI surprise calmly, we expect yields to gradually drift higher over the last few weeks for the year. We expect trading activity to remain relatively muted, barring any surprises, with more investors likely to trim positions further moving towards yearend,” he said.

Potential buying demand may surface if the central bank signals adjusting the reserve requirement ratio over the short term, Mr. Liboro added.

“For [this] week, we may see GS to trade sideways with an upward bias as the market will try to monitor statements from BSP and look for hints if another policy adjustment is within the horizon,” the trader said. — Michelle Anne P. Soliman

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