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November 22, 2017 | MANILA, PHILIPPINES
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   yield tracker
Date posted: Monday, March 27, 2017 | Manila, Philippines

Yields on government debt rise as investors take gains

YIELDS at the Philippines’ secondary debt market soared almost across the board on Friday on a host of developments not least of which was profit taking following the US Federal Reserve’s second rate hike in three months.

Bond yields, which move opposite to prices, rose by an average of 21.17 basis points (bps) week on week, data from the Philippine Dealing & Exchange Corp. as of March 24 showed.

“Local government securities yields inched up on profit taking post-Federal Open Market Committee (FOMC) and as well as on a weaker peso,” Carlyn Therese X. Dulay, vice-president and head of institutional sales at Security Bank Corp., said in an e-mail.

“It also moved up slightly after the five-year reissue (FXTN 5-74) was awarded at the high end of the range and prior to the announcement for a new three-year RTBs (retail Treasury bonds) issuance in the amount of at least P30 billion scheduled in April,” Ms. Dulay added.

During its March 15 meeting, the FOMC hiked policy rates by 25 bps, which came after a similar increase last December. The Bangko Sentral ng Pilipinas (BSP) last Thursday kept its own policy rates steady, but the foreign exchange slipped to P50.339:US$1 a day later from the P50.301:US$1 the day before.

On March 21, the government made a full award of reissued five-year Treasury bonds (T-bond) amid strong appetite for the debt papers.

The Bureau of the Treasury raised P15 billion as planned from its offer of the reissued five-year bonds with a remaining life of four years and 10 months. Total tenders reached P26.645 billion, nearly double the government’s offer.

Two days later, the Treasury bureau announced it will sell at least P30 billion worth of three-year retail Treasury bonds on March 28.

Ruben Carlo O. Asuncion, chief economist of the Union Bank of the Philippines, noted in an e-mail that BSP’s no rate hike stance also affected the yields movement.

“It signalled the BSP’s confidence in the Philippines’ economic growth story. Moreover, I am also looking at the ‘surprise’ inflation forecast cuts,” he said, referring to the central bank’s move to trim its inflation forecasts for 2017 and 2018 to 3.4% from the previous 3.5% estimate.

“These cuts support the central bank’s position that the Philippine economy is still within their expectations and forecasts that no adjustments have to made,” Mr. Asuncion added.

At the secondary market, yields on all tenors rose nearly across the board. At the short end of the curve, rates went up, with the 91-day Treasury bill (T-bill) rising the most by 73.52 bps to 3.0125%. This was followed by the 182-day T-bill, which gained 39.97 bps to 2.9268%, and the 364-day papers, which rose 11.25 bps to fetch 3.1643%.

At the belly, yields on the two-, three-, five- and seven-year securities went up by 25.22 bps (to 4.3343%), 5.69 bps (to 3.9412%), 24.00 bps (to 4.2900%) and 15.21 bps (5.2021%), respectively. The yield on the four-year debt paper however fell 11.91 bps to 4.3309%.

At the long end of the curve, the 10- and 20-year T-bonds saw yields increase by 20.90 bps to 5.3036%, and 7.86 bps to 5.5375%, respectively.

Going forward, Mr. Asuncion said yields would continue to rise next week.

“I do not see anything that would derail yields rising moving forward. Locally, the biggest mover will be the tax reform bill still pending in Congress but would only acted upon once legislators comeback from their recess after holy week,” he said.

“From abroad, I am looking at the Trump policies waiting to be laid out,” Mr. Asuncion said, referring to US President Donald Trump’s America-first policy.

Security Bank’s Ms. Dulay expects yields to take their cue from the pricing of the government’s three-year RTBs as it starts its offer tomorrow.

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