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November 22, 2017 | MANILA, PHILIPPINES
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   yield tracker
Date posted: Monday, May 29, 2017 | Manila, Philippines

Yields on gov’t debt drop

YIELDS on government securities (GS) went down last week amid geopolitical uncertainties and as minutes of the US Federal Reserve’s May meeting carried a dovish tone.

Week on week, GS yields declined by an average of 10.73 basis points (bps), data from the Philippine Dealing & Exchange Corp. as of May 26 showed.

“GS yields fell [last] week due to safe-haven buying amid geopolitical uncertainties in the Philippines, UK and US. There was a martial law declaration in the Philippines, a bombing in the UK, and political noise concerning former FBI (Federal Bureau of Investigation) director James Comey in the US,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines.

Carlyn Therese X. Dulay, vice-president and head of institutional sales at Security Bank Corp., said: “The possibility of a liability management exercise in the local government securities space spurred some buying speculation in the market with interest mostly concentrated on the short end of the curve as the full closure of the ODF (overnight deposit facility) to trust department draws near.”

The Bangko Sentral ng Pilipinas (BSP) wants to close off trust companies’ access to the term deposit and overnight deposit facilities by next month to focus mopping up excess liquidity through banks alone.

The term deposit facility is the central bank’s main tool to capture excess liquidity in the financial system by allowing financial firms to place their idle funds under the new window in exchange for a small margin.

Through this, the BSP expects to bring market rates closer to its 3% benchmark rate and prod the firms to pursue interbank lending.

“Moreover, yields also fell due to the less hawkish tone of the recent US policy meeting minutes, which reduced the chances of a June 2017 US interest rate hike. Profit taking partly offset the drop in yields,” Landbank’s Mr. Dumalagan added.

Security Bank’s Ms. Dulay agreed, saying the market also followed US Treasuries’ decline due to risk off sentiment after the Manchester bombing and dovish Fed minutes.

According to the minutes of Fed’s May 2-3 meeting released last week, policy makers said they should hold off on raising interest rates until it was clear a recent US economic slowdown in the first quarter was temporary.

At the secondary market last Friday, yields on GS fell almost across the board except for two-year and 364-day debt papers, which increased by 26.54 bps and 1.85 bps, respectively, to 3.6654% and 2.8413%.

The yield on the 91-day Treasury bill declined by 77.78 bps to fetch 1.9439% to lead the rally. It was followed by the rates of the 182-day and seven-year papers, which decreased by 18.81 bps and 15 bps, respectively, to 2.6786% and 4.8839%.

Likewise, yields on the 20-, five-, 10-, three-, and four-year bonds dropped by 6.54 bps, 6.25 bps, 6.22 bps, 4.60 bps, and 0.44 bp, respectively, to 5.4839%, 4.1401%, 4.9882%, 3.8391%, and 4.0521%.

For this week’s trading, Security Bank’s Ms. Dulay expects “market participants to take their cue from the seven-year [bond] auction...which is expected to print between 4.5%-4.625%.”

The Bureau of the Treasury is offering P15-billion worth of reissued seven-year bonds at an auction tomorrow.

For his part, Landbank’s Mr. Dumalagan said that for this week, “yields might increase amid bets of an upward revision in the first quarter growth of the US economy. Expectations of firm US labor reports might push yields higher by prompting investors to take profit after this week’s price rally.” -- Mark T. Amoguis

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