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September 23, 2017 | MANILA, PHILIPPINES
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   yield tracker
Date posted: Monday, July 03, 2017 | Manila, Philippines

Yields on gov’t debt go up on US GDP, Fed remarks

UPWARD REVISIONS in US growth data pushed yields of local government securities (GS) north last week, coupled with hawkish comments by Federal Reserve officials that fuelled bets of another rate hike by the central bank within the year.

During the week, GS yields went up 21.23 basis points (bps) on average, data from the Philippine Dealing & Exchange Corp. as of June 30 showed.

“GS yields increased [last] week, as the upward revision in US GDP (gross domestic product) growth supported Fed[eral Reserve] Chair Janet L. Yellen’s hawkish remarks,” said Land Bank of the Philippines market economist Guian Angelo S. Dumalagan.

“In particular, Fed Chair Yellen suggested that the US Fed was still on track to hiking rates gradually despite easing inflation expectations,” Mr. Dumalagan said.

Data released last week showed US first quarter GDP grew at a revised rate of 1.4% from the previous 1.2% estimate, with upward revisions seen in consumer spending and exports, which grew 1.1% (from the previous estimate of 0.6%) and 7% (previously 5.8%), respectively. Analysts expect growth to pick up to 3% in the second quarter.

Mr. Dumalagan also noted comments by other Fed officials such as John Williams and Patrick Harker, Fed presidents of San Francisco and Philadelphia respectively, who also echoed Ms. Yellen’s statements.

The Fed has raised short-term interest rates by three times since December with unemployment falling to its lowest level in 16 years. The Fed has likewise hinted on another rate hike this year.

Ms. Yellen gave no indication of a shift in monetary policy in her latest speech last Tuesday, saying that “it will be appropriate” to “raise interest rates very gradually.”

Meanwhile, Mr. Williams had been quoted in news reports as saying that the Fed should follow through with its plan to increase interest rates as well as start reducing its $4.5-trillion balance sheet, or else the economy will “eventually overheat causing inflation or some other problem.” He also said that the US economy was “as close to” its twin goals of low unemployment and stable inflation.

Mr. Harker, meanwhile, said he still supports the “continued gradual removal of accommodation” and that another rate hike this year is “appropriate.”

In the secondary market, the short-end of the yield curve saw steep increases in rates as the 91-, 182- and 364-day Treasury bills saw their yields increase by 74.76 bps (2.8139%), 16.6 bps (2.4615%) and 37.94 bps (3.2257%) respectively.

The belly likewise saw rate increases with the exception of the five-year Treasury bonds (T-bonds) whose yield went down 1.57 bps to 4.0336%. Meanwhile, the two- and seven-year T-bonds had double-digit increases of 50.8 bps (3.8718%) and 44.81 bps (4.9171%). The yields on the three- and four-year papers increased by 5.41 bps (3.8916%) and 1.73 bps (4.0321%).

At the long-end, the 10-year debt paper saw a 6.58 bps increase to yield 4.6691%, while the 20-year T-bond went the opposite direction, with yields going down 24.77 bps (5.0844%).

This week, Mr. Dumalagan expects yields to move sideways “with a slight downward bias amid weak US manufacturing data and lower Philippine inflation.”

“These downward pressures might be partly offset by potentially strong US non-manufacturing data and hawkish Fed minutes,” he said. He added that the minutes of the recent Fed meeting might have “minimal impact.” -- Leo Jaymar G. Uy

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