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November 22, 2017 | MANILA, PHILIPPINES
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   yield tracker
Date posted: Monday, March 13, 2017 | Manila, Philippines

Yields climb ahead of Fed

YIELDS on government securities (GS) rose last week following the release of strong US employment data, which further cemented expectations of an interest rate hike by the US Federal Reserve at its meeting this week.

Bond yields, which move opposite to prices, rose by an average of 18.76 basis points (bps) week on week, data from the Philippine Dealing & Exchange Corp. as of March 10 showed.

“GS yields increased [last] week primarily because of three main factors: Fed Chair [Janet] Yellen’s hawkish remarks, better-than-expected US ADP employment data, and the European Central Bank’s (ECB) announcement of a possible tapering of its bond buying program this year,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank).

Early this month, Ms. Yellen hinted on a March lift-off, saying “it will be appropriate to gradually increase the federal funds rate if the economic data continue to come in about as we expect.”

The release of February US non-farm payrolls data further bolstered the possibility of a rate hike by the Fed during its meeting on March 14-15. Non-farm payrolls increased by 235,000 jobs last month as the construction sector recorded its largest gain in nearly 10 years due to unseasonably warm weather, the US Labor Department said on Friday.

In Europe, the ECB reaffirmed the extension of its quantitative easing program supposedly ending this month to December 2017. Monthly asset purchases, however, will be tapered to €60 billion from €80 billion starting April.

The ECB’s decision “propelled [local] GS yields by reinforcing views that the era of massive monetary accommodation might already be coming to an end,” said Landbank’s Mr. Dumalagan.

Major developments in the US were also reflected here as in the case of last week’s auction by the Bureau of the Treasury, a bond trader said by phone.

“This shows the sentiment of the market which expects yields to go up,” the trader said. “Some had just unloaded their positions on the expectation of higher US interest rates. Others are waiting for the next move by the Federal Reserve after the rate hike.”

At the secondary market on Friday, the yield on the 364-day Treasury bill (T-bill) soared by 49.99 bps to 3.1286%. It was followed by the five-year Treasury bond (T-bond), whose yield increased by 47.84 bps to 4.5117%.

The yields on the two-, four-, 10- and 20-year T-bonds gained more than 20 bps from the previous week as they respectively rose by 34.11 bps, 25.46 bps, 25.89 bps and 21.25 bps to 4.2125%, 4.5689%, 5.2375% and 5.4696%.

The rates of the three- and seven-year debt papers also went up by 14.61 bps and 17.90 bps, respectively, to 3.8875% and 5.0761%.

Only the yields on the 91- and 182-day T-bills declined, dropping by 9.46 bps and 40 bps, respectively, to 2.2252% and 2.4214%.

Sought for his outlook for this week, Landbank’s Mr. Dumalagan said market players will look to the February US inflation report due out on Wednesday. “The major push for GS yields, however, might come from the FOMC (Federal Open Market Committee) economic projections, which are expected to show a higher path of interest rate normalization.”

The bond trader said: “Yields are still expected to have an upward bias but market players will stay on the sidelines before the actual announcement by the Fed... The rate hike is basically a hundred percent done deal. The next focus would be the outlook for the succeeding rate hikes.” -- Jochebed B. Gonzales

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