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August 17, 2017 | MANILA, PHILIPPINES
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   yield tracker
Date posted: Monday, December 19, 2016 | Manila, Philippines

Yields rise on Fed, OPEC

YIELDS on government securities (GS) ended mixed last week following the much anticipated interest rate hike by the US Federal Reserve and oil producers’ deal to cut oil output.

Week on week, yields on government securities (GS) -- which move opposite to prices -- increased by an average of 6.82 basis points (bps), data from the Philippine Dealing & Exchange Corp. as of Dec. 16 showed.

A bond trader interviewed by phone said that this rise in yields was driven by the statement delivered by the Federal Open Market Committee (FOMC) -- the policy-making body of the US Federal Reserve -- last Wednesday.

During its two-day Federal Open Market Committee meeting, the Fed unanimously decided to increase the federal funds rate as expected to a range within 0.50-0.75%, the first tightening move since it raised rates in December 2015 after keeping rates at near-zero levels following the global financial crisis in 2008.

The US central bank is looking at three rate hikes in 2017, instead of two hinted in September this year.

Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank), said aside from the Fed rate hike, the production cut agreement between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members also caused yields to rise.

“The output reduction among global oil producers initially pushed yields higher in the first two days of the week by boosting inflation expectations and reinforcing views of more rate hikes next year by the US Federal Reserve,” he said in an e-mail.

According to a Reuters report, producers from outside the OPEC, led by Russia, agreed on Dec. 10 to reduce output by 558,000 barrels per day (bpd), short of the target of 600,000 bpd but still the largest non-OPEC contribution ever.

It followed OPEC’s Nov. 30 deal to cut output by 1.2 million bpd for six months from Jan. 1. Top exporter Saudi Arabia will cut around 486,000 bpd to reduce the supply glut that has dogged markets for two years.

Landbank’s Mr. Dumalagan added: “After a downward correction on Wednesday, yields surged again Thursday, after the US central bank signalled three rate hikes next year, beyond market expectations of just two rate adjustments. Yields were trimmed slightly on Friday due to bargain hunting.”



At the secondary market last Friday, GS yields ended mixed. Yield on 182-day Treasury bill (T-bill) increased the most, rising by 44.38 bps to 2.1431%, followed by the 10-year Treasury bond (T-bond), which rose by 41.24 bps to 5.0054%.

Similarly, yields on 20-, seven-, three-, and five-year T-bonds climbed by 28.39 bps, 10.18 bps, 3.28 bps, and 1.72 bps, respectively, closing with 5.5321%, 5.0286%, 3.6001%, and 4.8486%.

On the other hand, yield on 91-day T-bill declined by 30.12 bps to 1.5059%.

Yields on 364-day T-bill, four-, and two-year T-bonds dropped by 25.86 bps, 3.95 bps, and 1.07 bps, respectively, to 2.1654%, 3.9647%, and 3.9893%.

Asked for his outlook for this week’s trading, the bond trader said it will be “more likely sideways with slight upper bias” as “it’s still very low on volume.”

For Landbank’s Mr. Dumalagan, he said: “[This] week, GS yields might fall slightly, tracking the likely decline in US Treasury yields amid bets of mixed US reports on housing, durable goods orders, third-quarter GDP (gross domestic product) growth and personal consumption expenditure inflation.”

He said yields might move sideways due to lack of fresh leads domestically and abroad toward the yearend.

“Bargain hunting might cause yields to fall in some days, but declines might be temporary due to heightened expectations of more rate hikes next year by the US Federal Reserve,” the economist added.

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