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Yields on gov’t securities up slightly on retail bonds

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YIELDS ON government securities (GS) went up slightly following the auction of retail Treasury bonds (RTB), the release of the US gross domestic product (GDP) growth report, and expectations of within-target domestic inflation.

On average, debt yields — which move opposite to prices — increased by 0.34 basis point (bp) week on week, the PHP Bloomberg Valuation Service Reference Rates as of March 1 published on the Philippine Dealing System’s website showed.

Nicholas Antonio T. Mapa, senior economist at ING Bank NV-Manila Branch, said in an email that the market reacted “to the retail Treasury bond issuance as well as to Bangko Sentral ng Pilipinas (BSP) inflation forecast showing February inflation could slide back within target.”

Deanno J. Basas, president and managing director of ATR Asset Management (ATRAM) Trust Corp., shared the same view, and attributed the slight increase in yields to “the pricing of the new five-year RTB, at 6.25%.”

Last week, the Bureau of Treasury raised a total of P113.8 billion from the rate-setting auction of the new five-year RTBs at a coupon of 6.25% following “strong market demand.”

Total tenders for the government’s first offering of RTBs in 2019 reached P121.8 billion, which caused the state to upsize its award from the initial P30-billion program “to take advantage of the favourable rate and healthy market appetite.”




The RTBs are available to the public between Feb. 26 and March 8 at minimum denominations of P5,000. Proceeds from the issuance will go to health services, educational programs, and public infrastructure.

Meanwhile, the government has kept its 2-4% annual inflation target until 2022, according to a Friday statement from the Bangko Sentral ng Pilipinas (BSP).

The central bank expects inflation to ease to 3.1% this year, well within the target band, from a 5.2% average in 2018.

Inflation hit a nine-year-high 6.7% in September and October last year but has been easing since, hitting 4.4% in January.

The BSP said on Thursday that it expects February inflation, which the Philippine Statistics Authority will report on March 5, to have slowed further to 3.7-4.5%. February last year saw inflation clock in at 3.8%.

ING’s Mr. Mapa added that external factors affected the movement of GS yields. “Upward pressure derived from higher treasury yields on stronger-than-expected United States gross domestic product (GDP),” he said.

The US Commerce Department reported last week that the world’s largest economy grew 2.9% in 2018 but fell short of a 3% target despite $1.5 trillion in tax cuts and a government spending blitz.

At the secondary market, at the short end of the curve, yields on the 91, 182- and 364-day Treasury bills dropped by 0.10 bp (5.57%), 2.7 bps (5.888%), and 3.7 bps (6.060%), respectively.

Meanwhile, at the belly, rates of the two-, three-, four-, five and seven-year Treasury bonds (T-bond) increased by 2.4 bps, 2.1 bps, 2.6 bps, 3.3 bps and 4.1 bps to 6.063%, 6.089%, 6.122%, 6.16%, and 6.242%, respectively.

At the long end, the 10-year T-bond saw its yield go up by 3.6 bps to 6.316%, while rates of the 20- and 25-year tenors went down 1.5 bps and 6.4 to 6.636% and 6.733%, respectively.

For this week, Mr. Mapa said yields will take their cue from domestic inflation data and on possible developments regarding the BSP governor’s successor.

Meanwhile, ATRAM’s Mr.Basas expects yields “to hold around current levels until final issuance of the new RTB in a couple of weeks. February consumer price index out…Tuesday will also be closely watched.” — L.O. Pilar