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November 22, 2017 | MANILA, PHILIPPINES
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   yield tracker
Date posted: Monday, June 19, 2017 | Manila, Philippines

Yields decline on US data

YIELDS on government securities (GS) dropped last week following the United States Federal Reserve’s interest rate hike and amid weaker reports on inflation and retail sales out of the world’s largest economy.

Bond yields, which move opposite to prices, fell by an average of 9.75 basis points (bps) week on week, data from the Philippine Dealing & Exchange Corp. as of June 16 showed.

Ruben Carlo O. Asuncion, chief economist of the Union Bank of the Philippines, said the yield movement was a reaction to the Federal Reserve’s decision.

The Fed hiked its benchmark overnight interest rate by 25 basis points to range of 1-1.25% and said it would start reducing its $4.2-trillion portfolio of bonds and mortgage-backed securities this year.

Fed Chairperson Janet L. Yellen also hinted on one more rate hike this year, signalling confidence in the US economy despite mixed economic data reported last month, Reuters reported.

Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank), said GS yields fell despite the Fed’s move to raise interest rates. “Weak US reports on inflation and retail sales raised doubts about the ability of the US central bank to maintain its projected path of interest rate normalization.”

He noted that the drop in yields was also offset by profit taking.

US consumer prices unexpectedly fell in May and retail sales recorded their biggest drop in 16 months, Reuters reported.

The US Labor Department also said its consumer price index dipped 0.1% last month.

At the close of trading at the secondary market last Friday, in the short end of the yield curve, the 91-day Treasury bill (T-bill) went up by 66.67 bps to fetch 2.6804%. Meanwhile, the 182- and 364-day debt papers saw their yields go down 57.53 bps (2.3247%) and 3.78 bps (2.8074%).

In the belly, debt yields went down across the board. The two-, three-, four-, five- and seven-year Treasury bonds (T-bond) said their rates drop by 32.71 bps (3.28%), 1.58 bps (3.8343%), 2.78 bps (3.9929%), 7.45 bps (4%) and 29.27 bps (4.4716%), respectively.

In the long end of the curve, the 10-year T-bond fell 29.63 bps to yield 4.6412%, while the 20-year T-bond saw its rate go up by 0.54 bps to 5.3554%.

Going forward, Mr. Dumalagan expects yields to move sideways due to scarcity of major market movers this week.

“Bets of weak US housing data might offset the impact of profit taking after [last] week’s price gain.” -- Lourdes O. Pilar

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