Government debt yields slip before key US data

YIELDS on government securities (GS) mostly declined last week on profit taking amid a lack of catalysts and as investors took positions before the release of key US economic data that could affect the US Federal Reserve’s policy decision this month.

GS yields, which move opposite to prices, went down by an average of 0.69 basis point (bp) week on week at the secondary market, according to the PHP Bloomberg Valuation Service Reference Rates as of Aug. 30 published on the Philippine Dealing System’s website.

Rates at the short end of the curve decreased, with the 91-, 182-, and 364-day Treasury bills (T-bills) falling by 0.93 bp, 5.73 bps and 2.13 bps to fetch 5.9154%, 5.9986% and 6.0825%, respectively.

At the belly, yield movements were mixed, as the two- and three-year Treasury bonds (T-bonds) saw their rates decline by 0.74 bp (to 6.0091%) and 0.06 bp (6.0171%), respectively, while the four-, five-, and seven-year papers climbed by 0.58 bp (6.0302%), 0.97 bp (6.0432%) and 1.06 bps (6.0598%), respectively.

Lastly, tenors at the long end saw their rates fall across the board. The 10-, 20-, and 25-year T-bonds slipped by 0.41 bp, 0.21 bp and 0.02 bp to fetch 6.0694%, 6.1759%, and 6.1771%.

Total GS volume traded reached P16.01 billion on Friday, lower than the P43.32 billion recorded on Aug. 30.

“Local yields slightly declined over the week as local participants have firmed their expectations of a September US Federal Reserve rate cut following dovish guidance from Fed Chair Jerome H. Powell during the Jackson Hole Symposium,” the first bond trader said in an e-mail.

“While market participants welcomed this clear dovish signal from the Fed, local participants remained on the sidelines ahead of further key US economic data on the second reading of US gross domestic product growth and the Fed’s preferred inflation gauge,” the first trader added.

The second bond trader said GS yields mostly moved sideways last week amid a lack of trading drivers.

“We saw good two-way interest — players building up their positions while others were taking profit,” the second bond trader said in a Viber message.

US consumer spending increased solidly in July, suggesting the economy remained on firmer ground early in the third quarter and arguing against a half-percentage-point interest rate cut from the Fed this month, Reuters reported. The report from the Commerce Department on Friday also showed prices rising moderately last month, curbing inflation.

Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.5% last month after advancing by an unrevised 0.3% in June, the Commerce department’s Bureau of Economic Analysis reported.

On the other hand, the personal consumption expenditures (PCE) price index rose 0.2% in July after an unrevised 0.1% gain in June, the report also showed. In the 12 months through July, the PCE price index increased 2.5%, matching June’s gain.

For this week, GS yield movements will be driven by August Philippine headline inflation data to be released on Sept. 5 (Thursday), both traders said.

“Yields are likely to move lower amid a potential reversion of domestic inflation towards the BSP (Bangko Sentral ng Pilipinas) target and expectations of subdued readings on the US labor market in August,” the first trader said.

The second trader said the August consumer price index (CPI) report “would provide additional information on how many cuts the BSP can deliver until end of year.”

A ����ý poll of 15 analysts yielded a median estimate of 3.7% for the August CPI, within the BSP’s 3.2-4% forecast for the month. If realized, this would be slower than the nine-month high of 4.4% in July, which also marked the first time since November 2023 that headline inflation exceeded the BSP’s 2-4% goal. This would also be below the 5.3% print recorded in August 2023.

The BSP last month cut benchmark interest rates for the first time in almost four years amid an improving inflation and economic outlook, with its governor signaling at least one more reduction before the end of the year.

The Monetary Board on Aug. 15 reduced its policy rate by 25 bps to 6.25%.

BSP Governor Eli M. Remolona, Jr. said they could cut rates by another 25 bps within the year. The Monetary Board’s remaining policy-setting meetings this year are on Oct. 17 and Dec. 19. — Lourdes O. Pilar with Reuters