Yields on gov’t debt rise

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Yield Tracker

By Mark T. Amoguis,Researcher

YIELDS on government securities went up last week as market players stayed cautious ahead of expectations of a faster September inflation print.

Bond prices dipped as yields climbed by a week-on-week average of 25.29 basis points (bp) week, data from the Philippine Dealing & Exchange Corp. as of Oct. 5 showed.

According to Nicolas Antonio T. Mapa, senior economist at ING Bank N.V.-Manila Branch, last week’s trading was largely influenced by expectations of a faster inflation print.

“Prior to the release, forecasts for elevated levels for price gains may have forced a cautious tone from players while global developments, in particular surging US Treasury yields, also left traders with more incentive to stay sidelined,” Mr. Mapa said.

Carlyn Therese X. Dulay, first vice-president and head of institutional sales at Security Bank Corp., agreed, adding that: “Another factor was the sell-off in US treasuries on higher services PMI (purchasing managers’ index) with the CT10 reaching a high of 3.22%,” referring to the current 10-year US Treasury bond.

The Philippine Statistics Authority reported on Friday that headline inflation printed at 6.7% in September, picking up from 6.4% in August and the 3% logged in the same month last year on the back of faster increases recorded in the heavily weighted food index as well as the non-alcoholic beverages index.

The latest inflation print was the fastest in nearly a decade or since February 2009’s 7.2%.

The September reading was below the BusinessWorld poll median and the Bangko Sentral ng Pilipinas (BSP) estimate of 6.8%, but still within the regulator’s 6.3%-7.1% predicted range. However, it was higher than the 6.4% pegged by the Department of Finance.

For the year thus far, headline inflation averaged at 5%, above the 2-4% government target. The central bank now expects the inflation to average at 5.2% this year.

At the secondary market last Friday, bond yields rose across the board, save for the three-year debt, which declined by 42.32 bps from a week ago, fetching 6.6107%.

“Client demand on the short end supported the levels on the three-year paper which is why yields dropped on this tenor,” Security Bank’s Ms. Dulay explained.

The yield on 182-day Treasury bill (T-bill) climbed the most, adding 80.25 bps to end at 5.4516%. It was followed by 10- and four-year Treasury bonds (T-bond), whose rates increased by 53.23 bps and 48.93 bps, respectively, to 7.7671% and 7.9357%.

Similar upward movements were seen in the yields of the 364- and 91-day T-bills, which added 41.51 bps and 40.73 bps to 5.6911% and 4.7167%, respectively.

Two-, five-, seven-, and 20-year T-bonds climbed 19.18 bps, 6.23 bps, 3.05 bps, and 2.10 bps, respectively, to fetch 6.3908%, 7.1018%, 7.1406%, and 8.3179%.

For this week, Ms. Dulay of Security Bank expects yields to remain within range “with some upward pressure ahead of NFP (non-farm payrolls) data and the scheduled Treasury bill and five-year bond auction, which is expected to fetch 7.10-7.25%.”

ING’s Mr. Mapa added that the Treasury bond auction on Tuesday “will set the tone for the rest of the week.”

The Bureau of the Treasury will offer P15 billion worth of T-bills today, while it will auction off its reissued five-year papers with a remaining life of four years and four months worth P15 billion on Oct. 9.