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Yields on local gov’t debt track US Treasuries’ rates

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YIELDS on local government securities (GS) traded at the secondary market ended mixed last week as they tracked US Treasuries following the news of an impeachment case against US President Donald J. Trump.

Debt yields, which move opposite to prices, went down by an average of 2.6 basis points (bps) week on week, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates as of Dec. 20 published on the Philippine Dealing System’s website.

At the short end of the yield curve, the 91- and 364-day Treasury bills (T-bills) declined by 4.5 bps and 0.8 bp to fetch 3.209% and 3.463%, respectively. On the other hand, the rate on the 182-day T-bill went up by 2.7 bps, yielding 3.374%.

At the belly of the curve, the rates on the two- three-, four-, five- and seven-year Treasury bonds (T-bonds) dropped by 0.7 bp (3.718%), 4.8 bps (3.809%), 8 bps (3.918%), 10.3 bps (4.04%), and 10.3 bps (4.278%), respectively.

Meanwhile, the yield on the 10-year T-bond went down by 3.2 bps to fetch 4.504%. On the other hand, the 20- and 25-year debt papers saw their yields go up by 4.3 bps (5.208%) and 7.2 bps (5.230%), respectively.

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“Market players seemed to take their cues from the US Treasury movements [last week]…,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail, adding there was “mixed interest” seen all over last week due to the recent impeachment bid against Mr. Trump.

The US House of Representatives approved two articles of impeachment against Mr. Trump for abuse of power and obstruction of Congress, Reuters reported last Wednesday. A trial next month to decide whether he will be convicted and removed from office is expected at the US Senate.

Meanwhile, ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said GS yields have “adjusted slightly higher” from its levels on Dec. 13 that saw movements influenced that time by Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno’s statement of a possible 50-bp rate cut next year.

“Despite this retracement, yields remained lower than where we had closed the previous week,” Mr. Liboro said in a separate e-mail.

BSP’s Mr. Diokno told reporters earlier this month that the central bank is looking to cut rates by at least 50 bps in 2020 as it continues to reverse the 175 bps worth of hikes in 2018 implemented in the face of surging inflation that averaged a near-decade-high of 5.2% that year.

Benchmark interest were cut by a total of 75 bps this year.

The BSP also said last Wednesday that economic managers decided to keep its 2-4% annual inflation target until 2022 as forecasts indicate “within-target inflation over the policy horizon.”

Moving forward, UnionBank’s Mr. Asuncion expects yields to move sideways because of a “limited trading week due to the holidays.”

He noted that the market is still expected to take much of its signal from developments abroad.

“Next week’s trading may pick up from the continuing drama of the same US political process mentioned [earlier],” Mr. Asuncion said.

For ATRAM Trust’s Mr. Liboro: “Given just a few workdays left in 2019, yields are likely to consolidate around current levels as we expect trading interest to dry up with investors closing their books for yearend.” — J.E. Hernandez

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