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November 22, 2017 | MANILA, PHILIPPINES
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   yield tracker
Date posted: Monday, March 06, 2017 | Manila, Philippines

Yields rise as Fed officials hint at rate hike this month

YIELDS on government securities (GS) went up on average last week due to hawkish comments from the US Federal Reserve on the possibility of an interest rate hike this month.

GS yields, which move opposite to prices, rose by 10.28 basis points (bps) on average week on week, data from the Philippine Dealing & Exchange Corp. as of March 3 showed.

Carlyn Therese X. Dulay, vice-president and head of institutional sales at Security Bank Corp., said: “Local government security yields ended higher across the board on hawkish comments from the Fed and the increasing probability of a March rate hike.”

For his part, Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines (Landbank), said: “GS yields surged [last] week primarily because of increased expectations of a US interest rate hike this month as a result of the hawkish comments of various Federal Reserve officials including [San Francisco Fed President John] Williams, [New York Fed President William] Dudley and [Fed Governor Lael] Brainard. These monetary officials are generally in agreement that a rate hike this month is probable given rising inflation, a tighter labor market and stabilizing global economic conditions.”

“The rise in GS yields, however, was capped by President [Donald J.] Trump’s refusal to provide more concrete details about his ‘phenomenal’ fiscal plan,” he added.

Last Friday, Fed Chair Janet Yellen also dropped a strong hint that interest rates are going up later this month if employment and inflation stay in line with expectations. The Federal Open Market Committee is scheduled to meet to review policy anew on March 14-15.

At the short end of the yield curve, the rate of the 364-day Treasury bills (T-bills) went up by 6.85 bps to 2.6287%. Meanwhile, yields on the 91- and 182-day papers were down by 10.70 bps and 13.22 bps to 2.3198% and 2.8214%, respectively.

At the belly, yields on all tenors increased, with the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) respectively gaining 6.25 bps (3.8714%), 8.60 bps (3.7414%), 16.61 bps (4.3143%), 6.36 bps (4.0333%) and 15.07 bps (4.8971%).

At the long end, the 10-year T-bonds also went up 64.99 bps to fetch 4.9786%, while the 20-year T-bond saw its yield rise 1.96 bps to 5.2571%.

Moving forward, Landbank’s Mr. Dumalagan said yields might increase again this week as “likely firm US labor reports could keep the possibility of a March 2017 US interest rate adjustment open. The monetary policy meeting of the European Central Bank [this] week could also push yields higher, as policy makers could hint of lesser stimulus ahead following the trend of rising inflation in the currency bloc.”

He added that a higher February inflation rate might cause an increase in yields.

“Domestically, the potential spike in headline inflation to about 3.4% in February 2017 might also result in higher domestic yields, as a sharper rise in consumer prices could fuel views of some tightening actions from [Bangko Sentral ng Pilipinas] starting mid-year.”

Official February inflation data will be released by the Philippine Statistics Authority tomorrow.

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