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November 22, 2017 | MANILA, PHILIPPINES
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   yield tracker
Date posted: Monday, November 28, 2016 | Manila, Philippines

Yields on gov’t debt mixed ahead of expected Fed hike

GOVERNMENT securities (GS) were mixed on average last week following the results of last Tuesday’s bond auction and increased chances of monetary tightening by the US Federal Reserve.

Yields on government securities fell by 3.11 basis points (bps) on average week on week, data from the Philippine Dealing & Exchange Corp. as of Nov. 25 showed.

Carlyn Therese X. Dulay, vice-president and head of the Institutional Flows Desk of Security Bank Corp.’s Treasury Group, said yields increased during the week “after the acceptance of the reissued [five-year bond] at a high of 4.25% and an average of 3.9777%, higher than the market’s expected 3.75-4.00% and after the 10-year US Treasuries touched a high of 2.415%.

Ms. Dulay also cited the peso’s depreciation to P50 to the dollar, its weakest level in over 10 years, with investors now pricing in a 100% chance of the US central bank raising the fed rate up by 25 basis points when it meets on Dec. 13-14.

“The week started with the local fixed income securities falling on thin liquidity with turnover coming in at just P3.1 billion given heightened expectations of a December rate hike in the US,” BPI Asset Management said in its weekly report.

“On the day of the auction, the local fixed income securities were basically flat day-on-day... Mid-week, local fixed income securities marginally moved day-on-day, as markets remained cautious ahead of economic data releases globally.”

“Prices of local fixed income securities then fell, tracking movements in the global bond space,” the report read.

Citing CME FedWatch data, Reuters reported that the odds of the Fed raising rates now stand at 100% following the release of the Fed minutes last Wednesday.

Minutes of the Federal Open Market Committee’s (FOMC) Nov. 1-2 meeting showed that policy makers were very hawkish about raising interest rates soon. Earlier, Fed Chair Janet L. Yellen earlier said that Donald Trump’s surprise victory in the Nov. 8 presidential elections has nothing to do with the Fed’s plan of raising interest rates “relatively soon.”

Some Fed officials, however, warned that the US central bank could increase rates “more quickly if the federal budget deficit widens under Trump.”

“The FOMC meeting affirmed market’s view of a December rate hike,” BPI Asset Management said.

Meanwhile, the Bureau of the Treasury raised P25 billion as planned from its auction of reissued five-year Treasury bonds (T-bond) with a remaining life of three years and nine months last Tuesday. The securities, which will mature on Aug. 20, 2020, fetched an average yield of 3.997%. The offer was slightly oversubscribed as bids reached P26.128 billion.

At the secondary market, rates on government debt papers were mixed. At the short end of the yield curve, the 91- and 182-day Treasury bills (T-bills) rallied, with rates going down by 13.04 bps and 126.08 bps respectively to fetch 1.6875% and 1.8196%. Meanwhile, the yield on the 364-day T-bills rose 7.50 bps to 3.7179%.

At the belly, the yield on the seven-year Treasury bonds decreased by 46.2 bps to 4.3666%. On the other hand, the rest of the T-bond tenors went the opposite direction as yields on the two-, three-, four-, and five-year bonds went up by 21.04 bps (3.6698%), 35.10 bps (3.9190%), 13.87 bps (4.2016%), and 29.82 bps (4.9946%).

Meanwhile, the long end of the yield curve saw rates on the 10- and 20-year T-bonds increase by 31.54 bps to yield 4.8554% and 15.36 bps to 5.6018%.

“Expect yields to consolidate at current levels (this week),” Ms. Dulay said.

“We continue to expect low liquidity in the peso fixed income space, with the yields mirroring global movements,” BPI Asset Management said.

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