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August 17, 2017 | MANILA, PHILIPPINES
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   yield tracker
Date posted: Monday, June 12, 2017 | Manila, Philippines

Yields down on US data

YIELDS on government securities (GS) ended lower last week due to soft jobs data in the United States as well as weaker-than-expected local inflation.

GS yields, which move opposite to prices, dropped by 2.13 basis points (bps) on average week on week, data on the Philippine Dealing & Exchange Corp. as of June 9 showed.

“GS yields fell [last] week due to soft US nonfarm payrolls (NFP) and weaker-than-expected Philippine inflation rate. The drop in yields was tempered by profit taking amid political and policy uncertainties in the US and Europe,” said Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines (Landbank).

Carlyn Therese X. Dulay, vice-president and head of institutional sales at Security Bank Corp., concurred, saying: “Yields dropped on the lower than expected NFP print at 138,000 as well as the lower than expected CPI (consumer price index) at 3.1% versus 3.3% market consensus.”

“Local government securities tracked UST (US Treasury) movement throughout the week, with the drop most noticeable on the long end of the curve on lack of supply,” she added.

The increase in prices of widely used goods and services eased to 3.1% last month from 3.4% in April but faster than 1.6% posted in May last year.

The preliminary result fell within the 2.9-3.7% range for May pegged by the Bangko Sentral ng Pilipinas. It brought the year-to-date inflation average to 3.1%, settling within the central bank’s 2-4% target band but below its 3.4% forecast for the entire 2017.

Meanwhile, the US Labor department reported job growth last month slowed to 138,000 after the manufacturing, government and retail industries lost employees in May, 66,000 short from figures seen in March and April.

Still, market observers and analysts are still pricing in a strong chance he Federal Reserve’s policy-making body Federal Open Market Committee (FOMC) will introduce a fresh interest rate hike during their June 13-14 meeting.

“The US central bank might increase the federal funds rate by 0.25 bps [this] week. However, it might signal a slower pace of US interest rate hike ahead,” Landbank’s Mr. Dumalagan said.

Should this materialize, this would be its second hike this year after a 25-basis-point increase last March. In December last year, Fed Chair Janet L. Yellen signaled at least three hikes for 2017.

In the short end of the curve, the yield on 91-day Treasury bill (T-bill) dropped by 42.74 bps, fetching 2.0137% at the secondary market last Friday. Rates of 182- and 364-day T-bills, meanwhile, went up by 69.48 bps and 0.50 bp, respectively, to 2.9% and 2.8452%.

In the belly, yields on the two-, three-, four-, five-, and seven-year debt papers fell by 9.29 bps (3.6071%), 3.71 bps (3.8501%), 33.29 bps (4.0207%), 6.55 bps (4.0745%), and 6.25 bps (4.7643%).

Yields on Treasury bonds at the long end saw mixed movements, with the 10-year notes gaining 21.12 bps to fetch 4.9375%, while the 20-year paper declined by 10.54 bps, finishing at 5.3500%.

For this week’s trading, Security Bank’s Ms. Dulay expects “yields to take its cue from the June 13 re-issuance of FXTN 10-61 (10-year fixed-term Treasury note) with a range of 4.625-4.75% and the FOMC meeting.”

For his part, Landbank’s Mr. Dumalagan said: “GS yields might rise [this] week, as the US Federal Reserve might increase interest rates anew during its June 2017 meeting.”

He added that “[l]ikely upbeat US retail sales and inflation might also push GS yields higher, although the likely dovish forward guidance of the US central bank might cap the increase in bond yields.”

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