Yield Tracker

By Carmina Angelica V. Olano
Researcher
YIELDS ON government securities (GS) traded on the secondary market ended flat last week amid the risk-off mood following the US government’s dovish sentiments and local central bank’s decision to keep banks’ reserve requirements unchanged.
On average, GS yields went down by 7.75 basis points (bp) week on week, according to the PHP Bloomberg Valuation Service (BVAL) Reference Rates as of March 22 published on the Philippine Dealing System’s website.
“Most of the long-term local benchmark interest rates (PHP BVAL yields; with tenors of 5 years and longer) declined by 0.15-0.20 week-on-week, with some long-term tenors declining to new 1-year lows, partly due to renewed and surprise dovish statements from the US Federal Reserve…,” Michael L. Ricafort, economist at the Rizal Commercial Banking Corp., said in an email interview.
In its March 19-20 policy meeting, the Fed kept its rates steady, shifting to a dovish perspective. Most of its officials expect only one more rate hike through 2021, amid muted US inflation and an expected slowdown in the economy.
Mr. Ricafort noted comparable government bond yields in the US and other developed countries declined following the Fed’s dovish tone.
“The 10-year US government bond yield declined to 14-month lows at 2.50% levels, the 10-year German government bond yield declined to 0% (lowest since 2016), and the 10-year Japan government bond yield already negative, at -0.06% (lowest since 2016),” Mr. Ricafort said.
“Thus, local interest rate benchmarks similarly eased partly due to the interest rate differential dynamics with the US and other developed countries as some global investors search for higher yields in emerging markets such as the Philippines,” he added.
Meanwhile, analysts noted that yields in the local benchmark interest rates were higher at the short-end.
Mr. Ricafort said the one-month to two-year [notes] were slightly higher week-on-week by less than 0.10 [bp], “after the local monetary authorities left large banks’ reserve requirement ratio unchanged at 18%, contrary to some market expectations of a cut; while the key local policy rates were widely expected by the markets to be unchanged.”
“This resulted to a much flatter yield curve,” he added.
In a phone interview last Friday, BDO Unibank, Inc. chief market strategist Jonathan L. Ravelas also noted there were expectations of a reserve requirement ratio (RRR) cut, but this did not materialize.
On March 21, the Bangko Sentral ng Pilipinas (BSP) kept benchmark interest rates unchanged, which marks the third straight meeting that kept rates within 4.25-5.25% and the key rate of 4.75% still at a decade-high.
The BSP last slashed the RRR in March and May last year, bringing the mandatory reserves for big banks to 18% of their total deposits.
“The accelerated government borrowing pushed [short-term paper] rates slightly elevated,” BDO’s Mr. Ravelas said, citing the 364-day Treasury bill was offered at an annual rate as high as 6.1%.
Last March 18, the government made a partial award of the 364-day papers, accepting just P5.096 billion out of the P8-billion program and total offers amounting to P8.766 billion. The average yield climbed 3.3 bps to 6.052% from the 6.018% quoted in the previous offer.
Treasury bills (T-bills) climbed across the board, led by the 91-day T-bill with a 7.5-bp increase to 5.751%. This was followed by the one-year and 182-day T-bills’ 2.7-bp and 1.6-bp increase to 6.081% and 5.921%, respectively.
Bonds at the belly of the curve went down, except for the two-year Treasury bond (T-bond) yielding 6.049%, 4.3 bps higher than week ago levels.
The three-year and four-year T-bonds yielded 6.022% and 6.003%, down 2.7 bps and 9.6 bps, respectively. Similarly, the five-, seven-, 10-year papers yielded 5.991%, 5.981%, and 5.964%, which were 15.1 bps, 19.9 bps and 21.6 bps lower week on week.
Yields on longer-term debt papers also dropped, with the 20- and 25-year T-bonds yielding 6.104% and 6.32%, down 20.7 bps and 11.7 bps, respectively, from a week ago.
For this week, Mr. Ravelas expect yields to move sideways as the traders consolidate while waiting for the March inflation data to be released.
“If inflation continues to go down, yields have a downward potential,” he said.
The March inflation data is scheduled to be released on April 5.
Meanwhile, RCBS’s Mr. Ricafort expect yields of long-tenored notes continue to decline.
“Long-term local benchmark interest rates (PHP BVAL yields) could continue their easing trend/momentum [this] week, as seen recently, due to lower global government bond yields…that could prompt the search for higher yields by fund managers in emerging markets such as the Philippines,” he said.
Mr. Ricafort said local debt papers may attract foreign traders amid the easing inflation trend, as well as the possibility of monetary policy easing and RRR cut.
“The latest gains in the peso exchange rate, if sustained, could also help continue the easing trend in the long-term local interest rate benchmarks [this] week,” he added.

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