Yields fall ahead of Trump

BOND YIELDS moved south last week on the back of safe-haven buying by investors as news of upbeat economic data in the US was offset by anxiety due to new leadership in the US as well as Britain’s exit from the European single market.

During the week, yields on government securities (GS) fell 8.91 basis points (bps) on average, data from the Philippine Dealing & Exchange Corp. as of Jan. 20 showed.

In the secondary market, rates of the debt papers were mixed. In the short end of the yield curve, the 91- and 364-day Treasury bills (T-bills) rallied, with rates going down by 20.65 bps and 0.84 basis point respectively to fetch 1.8381% and 2.6875%. Meanwhile, the yield on the 182-day T-bills rose 25.18 bps to 2.4286%.

In the belly, yields on the five- and seven-year Treasury bonds (T-bonds) went down respectively by 67.41 bps (3.8598%) and 59.41 bps (4.1255%), offsetting the yield increases seen in other tenors. The two-, three-, and four-year T-bonds saw yields go up by 10.18 bps (3.7036%), 4.68 bps (3.4035%) and 5.67 bps (3.6055%).

In the long end, yields on the 10- and 20-year papers increased by 3.35 bps (4.3975%) and 10.18 bps (5.3125%)

For Carlyn Therese X. Dulay, vice-president and head of institutional sales at Security Bank Corp., the higher rates seen early in the week are attributable to the movement of US Treasuries and “global risk events including the statements of Fed Chair Janet L. Yellen.”

Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank), was of the same opinion, saying that upbeat inflation and initial jobless claims data in the US supported Ms. Yellen’s assessment of the US economy requiring gradual interest rate hikes this year “in order to avoid financial risks ahead.”

However, the rise in yields was “tempered by safe-haven buying amid renewed ‘Brexit’ fears and caution ahead of the US presidential inauguration” which happened after local markets closed on Friday.

“[M]ajority of the decline occurred [last] Friday afternoon, offsetting the upward bias a of [last] Friday morning. Safe-haven would be the most logical reason, as the inaugural speech of Mr. Trump poses great political risk.”

Inflation in the US rose 2.1% last December after November’s 1.7%. Similarly, initial claims for state unemployment benefits fell unexpectedly by 15,000 to a seasonally adjusted 234,000 for the week Jan. 14, the US Labor Department reported.

Meanwhile, British Prime Minister Theresa B. May in her speech reaffirmed the government’s commitment of a “stronger Britain” but clarified that the referendum to leave the European Union “was not a decision to turn inward and retreat from the world.” Nevertheless, critics call Ms. May’s speech a confirmation of Britain “heading for a hard ‘Brexit.’”

“[This] week, Mr. Trump’s inaugural speech might take the spotlight. Expectations of euphoric statements from Mr. Trump about his plans for the US economy could push yields higher next week by supporting views of more US rate hikes this year,” Landbank’s Mr. Dumalagan said. “However, lack of clarity about his policy agenda could reverse the projected trend in yields.”

Security Bank’s Ms. Dulay added that yield movements will also depend on this week’s auction of T-bonds. The Bureau of the Treasury will offer fresh five-year bonds worth P15 billion tomorrow. — Leo Jaymar G. Uy