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November 22, 2017 | MANILA, PHILIPPINES
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   yield tracker
Date posted: Monday, May 15, 2017 | Manila, Philippines

Yields flat despite demand for short-dated securities

BOND YIELDS traded flat last week despite strong demand for short-dated securities as market players await for more clues on an impending rate hike in the US next month.

Prices increased as yields on government securities dipped 5.68 basis points (bps) on the average week on week, data from the Philippine Dealing & Exchange Corp. showed as of May 12.

“Local government securities traded within a 2-3-basis-point range after NFP (nonfarm payrolls) figures printed higher than expected and after the Treasury bill (T-bill) auction picked up overwhelming demand on strong investor appetite for the short-end amidst expectations of an increase in global interest rates in June,” said Carlyn Therese X. Dulay, vice- president and head of institutional sales at Security Bank Corp.

The US Bureau of Labor Statistics reported 211,000 additional jobs in April, beating analysts’ forecast of 190,000. The data, which was released on May 5, further strengthened expectations of tightening US policy rates next month.

On the domestic side, the Bureau of Treasury successfully awarded P15 billion in short-term debt papers last Monday: P6 billion in 91-day, P5 billion in 182-day, and P4 billion in 364-day T-bills.

These treasuries respectively fetched an average of 2.205%, 2.602% and 2.966% during the May 8 issue date, slightly lower than the rates from April 24 issuance which yielded 2.299%, 2.638% and 2.989%.

A bond trader said that the movement of yields at the secondary market was largely client-driven as players had already priced in their expectations on inflation and monetary policy.

“Demand came from the short-end, mostly client-driven. Data that came out were as expected, key rates and inflation forecast were unchanged,” he said.

The Bangko Sentral ng Pilipinas (BSP) kept its monetary policy setting on hold during its board meeting last Thursday, citing manageable inflation. Inflation in April was 3.4%, staying within 2-4% target range by the central bank. Year-to-date, it averaged 3.2%.

At the secondary market on Friday, yields on the short-term debt papers ended much lower week-on-week, led by the 91-day T-bill which lost 60.45 bps, to close at 2.0605%.

It was followed by the 182-day paper whose yield shed 11.09 bps to 2.8354%, while the rate of the 364-day T-bill dipped 0.45 bp to 2.8306%.

The yields of the two- and four-year Treasury bonds (T-bonds) also dropped by 0.89 bps and 2.02 bps, respectively, finishing with 4.4482% and 4.1047%.

Meanwhile, the yields of the three-, five, 10- and 20-year bonds gained 2.07 bps, 2.60 bps, 0.79 bp and 12.61 bps, to 3.9714%, 4.2647%, 5.0429% and 5.2733%.

The rate for the seven-year T-bond was left unchanged at 4.9911%.

“Expect yields to continue to trade within range as market participants await the 20-year fixed rate treasury note auction, which is expected to land at 5.125%-5.375%,” said Security Bank’s Ms. Dulay.

The bond trader said in agreement: “We expect a quiet trading on Monday and repositioning ahead of the auction on Tuesday.”

The Treasury bureau will auction 20-year T-bonds worth P15 billion tomorrow.

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