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November 22, 2017 | MANILA, PHILIPPINES
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   yield tracker
Date posted: Monday, December 12, 2016 | Manila, Philippines

Yields on government debt decline on bargain hunting

BARGAIN HUNTING prevailed last week, bringing down yields on government securities (GS) as investors looked to the US for developments.

Yields on government debt fell 7.38 basis points (bps) on average, data from the Philippine Dealing & Exchange Corp. as of Dec. 9 showed.

Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines, said yields generally declined due to bargain hunting amid views the recent sell-off following US president-elect Donald J. Trump’s unexpected win “may have gone too far.”

“Despite the weekly decline, yields initially surged (last) Monday by 19.47 bps, as upbeat US employment reports increased the chances of an interest rate hike next week by the US Federal Reserve,” he said.

“The latest US economic reports suggested that the labor market is already at or close to full employment. Yields also increased on Friday after the European Central Bank (ECB) reduced the size of its asset purchases, despite extending its bond buying program beyond March 2017.”

The ECB, after a policy meeting last week, announced that it is extending its bond buying program until the end of 2017 -- three months longer than expected -- but purchases would be cut to €60 billion a month from €80 billion.

The move comes on the heels of the failed Italian referendum vote which spurred political turmoil and anxiety in the euro zone.

Mr. Dumalagan said the political noise in Italy did not affect the movement of GS yields “at least at an observable level.”

At the secondary market, rates on debt papers were mixed. At the short end of the yield curve, the 182- and 364-day Treasury bills (T-bills) rallied, with rates going down by 14 bps and 47.87 bps respectively to fetch 1.6993% and 2.4240%. Meanwhile, the yield on the 91-day T-bills rose 25.81 bps to 1.8071%.

At the belly, yields on the three-, four-, five- and seven-year Treasury bonds (T-bonds) went down respectively by 21.33 bps (to 3.5673%), 15.93 bps (to 4.0042%), 4.72 bps (to 4.8314%) and 18.57 bps (4.9268%). On the other hand, the yield on the two-year debt paper increased 52.02 bps to 4%.

At the long end of the curve, the 20-year T-bond saw its yield decrease by 35.72 bps to 5.2482%, while the rate of the 10-year tenor went the opposite direction, increasing by 6.47 bps to 4.593%.

Asked on bond market movements in relation to the impending Fed meeting, Mr. Dumalagan said that investors already priced in the “likely rate hike” this week.

“After the rate hike, yields might probably increase temporarily, but it may drop soon after if the Fed takes on a balanced tone regarding its plan to hike rates next year.

“However, more hawkish assessments from the Fed could result in a rebound in GS yields. The new FOMC (Federal Open Market Committee) economic projections might provide clues about the Fed’s future actions.

The US central bank’s FOMC will meet on Dec. 13-14 to review policy settings anew. Markets are almost certain the monetary authority will raise rates this week.

For this week, Mr. Dumalagan said yields on government debt may rise ahead of the expected tightening move from the Fed.

“Bets of stronger US inflation could also push GS yields higher. The increase, however, might be capped by bargain hunting,” Mr. Dumalagan added. -- Leo Jaymar G. Uy

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