YIELD TRACKER

YIELDS ON government securities (GS) inched up last week as investors mostly stayed on the defensive following the release of Philippine gross domestic product (GDP) data.

GS yields rose by an average of 2.1 bps last week, based on the PHP Bloomberg Valuation Service Reference Rates as of Nov. 13 published on the Philippine Dealing System’s website.

At the secondary market on Friday, the 91-, 182-, and 364-day Treasury bills (T-bill) saw their yields go down by 0.2 basis point (bp), 3.1 bps, and 0.9 bp, respectively, to 1.104%, 1.472%, and 1.768%.

At the belly of the yield curve, rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) went up by one basis point (2.049%), 2.4 bps (2.315%), 1.7 bps (2.548%), 1.3 bps (2.738%), and 1.8 bps (2.943%).

Meanwhile, at the long end, yields on the 10-, 20-, and 25-year T-bonds climbed by 1.9 bps (3.011%), 8 bps (4.001%), and 9.6 bps (4.004%).

“The movement was largely expected because of the market’s preference for short-dated bonds and bills, and [last] week’s release of the larger-than-expected [third-quarter] GDP decline of 11.5% may have further supported the market’s trend,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

“Because of prevailing economic conditions, investors normally just stay on the defensive where they can earn enough without trying their money longer,” Mr. Asuncion added.

For Security Bank Corp.’s Chief Investment Officer for Trust and Asset Management Group Noel S. Reyes, the underlying factors in last week’s performance include the third-quarter GDP report, the US election results, and movement of yields on US Treasuries.

“The US elections, although it is a [Joseph R. Biden, Jr.] win…is creating an uncertainty, in a way, towards emerging markets. The US Treasuries have also climbed up in yields, so it also counters the trend that’s supposed to be our yields,” Mr. Reyes said in a telephone interview.

The Philippine economy continued to shrink for a third straight quarter, although at a slower pace compared with the second quarter, as lockdown restrictions were further loosened amid the coronavirus pandemic.

The economy remained in recession as GDP contracted by 11.5% in the third quarter after the record 16.9% plunge in the previous three-month period, the Philippine Statistics Authority reported on Tuesday. GDP grew by 6.3% in the third quarter of 2019.

Year to date, GDP shrank by an average of 10%. The government expects the economy to contract between 4.5%-6.6% this year.

UnionBank’s Mr. Asuncion expects “likely more of the same” for this week’s yield performance with a 2-4 bps rise week on week, but noted a surprise cut by the Bangko Sentral ng Pilipinas’ (BSP) Monetary Board at its meeting this week “may hold something for the market.”

“We are…staying on the hold side as the BSP may prioritize the sequential gains of third-quarter GDP on a quarter-on-quarter basis. It is still a decent improvement rather than no improvement at all,” Mr. Asuncion said.

For Security Bank’s Mr. Reyes: “I expect bond yields to be traded within a range of 5-10 bps (plus or minus) because of the underlying factors that have been creating a tug-of-war in the yields,” he said.

The Monetary Board will review its policy settings on Thursday, Nov. 19.

The BSP has slashed benchmark rates by 175 bps thus far this year to support the economy amid the pandemic, bringing down the rates on its overnight reverse repurchase, lending, and deposit facilities to 2.25%, 2.75%, and 1.75%, respectively. — A.O.A. Tirona

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