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November 22, 2017 | MANILA, PHILIPPINES
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   yield tracker
Date posted: Thursday, February 02, 2017 | Manila, Philippines

Debt yields move higher as markets eye Fed hike

DEBT YIELDS at the secondary market moved higher last week to track the movement of US Treasuries, with investor sentiment on bonds dented by an expected increase in interest rates in the world’s largest economy amid the change of leadership there.

Yields -- which move inversely to prices -- rose by 4.75 basis points (bps) on average week on week, data from the Philippine Dealing & Exchange Corp. as of Jan. 27 showed.

“Yields on government securities (GS) trended slightly higher this week, as it continued to track US treasury movement,” said Carlyn Therese X. Dulay, vice-president and head of institutional sales at Security Bank Corp.

“There was also slight upward pressure after the new five-year bond FXTN (fixed-rate Treasury notes) 5-74 fetched 4% at the primary auction, the high end of market consensus (3.75% -- 4.00%) though banks swarmed the offer amid excess liquidity.”

The government raised P15 billion from last Tuesday’s auction of newly issued five-year bonds maturing on Jan. 26,2022.

For Union Bank of the Philippines (UnionBank) First Vice-President and Trust Group Head Robert B. Ramos, the higher rates seen last week were attributable to expectations of a higher interest rate environment in the near term.

“I think they are already factoring in the intended Fed[eral Reserve] rate hike so of course with that coming, the expectation there is that local yields will follow. I think that’s the main reason,” Mr. Ramos said.

Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank), said GS yields tracked “US interest rates which increased amid views of stronger US growth under the Trump administration. In part, the rise in local stocks might have also pushed yields higher by reducing the safe-haven appeal of government bonds.”

Mr. Dumalagan noted that the country’s gross domestic product (GDP) data had “minimal impact” on yields, although he added that domestic interest rates went down slightly last Thursday by half a basis point.

The Philippine Statistics Authority reported last Thursday that GDP grew 6.6% in the last quarter of 2016, bringing full-year growth to 6.8%, which fell within the official 6-7% target for the year.

At the secondary market on Friday, the yield on seven-year Treasury bond (T-bond) rose the most, surging by 51.09 bps to fetch 4.6364%.

It was followed by the 91-day and five-year debt papers, whose rates went up by 19.58 bps and 10.58 bps, respectively, to 2.0339% and 3.9656%. Other tenors that saw increases in yields were the three-, and two-year securities which rose 2.83 bps and 0.46 bps to 3.4318% and 3.7082%.

On the other hand, the yield on the 364-day Treasury bill (T-bill) lost 24.75 bps week on week to end with 2.4400%. Yields on the 10-, 20-, four-year T-bonds also saw declines, shedding 6.52 bps, 4.00 bps and 0.03 bps to 4.3323%, 5.2725% and 3.6052%. The rate of the 182-day T-bill also dipped 1.75 bps to 2.4111%.

For this week, Landbank’s Mr. Dumalagan said debt yields may rise further “due to bets of strong US reports on GDP growth, employment and personal consumption expenditure inflation.” -- Christine Joyce S. Castañeda

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