Yields on gov’t debt flat

By Jochebed B. Gonzales, Senior Researcher
YIELDS ON government securities (GS) ended flat last week amid window-dressing activities as market players gear towards the yearend.
On average, GS yields — which move opposite to prices — inched up by 4.82 basis points (bps) week on week, according to the PHP Bloomberg Valuation Service (BVAL) Reference Rates as of Dec. 21 published on the Philippine Dealing System’s website.
“The PHP BVAL yield curve continued to be flatter [last] week,” Michael L. Ricafort, economist at Rizal Commercial Banking Corp. (RCBC), told ����ý in an e-mail.
“Short-term PHP BVAL yields continued to go up as the accounting yearend draws closer amid some window-dressing activities (with some premium for crossing-the-year funds)… However, long-end PHP BVAL yields continued to decline for the 9^th straight week,” he added.
A bond trader said by phone that trading last week started “strong” but eventually finished flat week on week.
“Earlier in the week, there was buying interest ahead of the FOMC (Federal Open Market Committee) meeting. There were players betting on a more dovish Fed (Federal Reserve) so yields went down by 10 bps,” the trader said.
“[On Thursday and Friday], players were already liquidating their positions which resulted to flat yields compared to the previous week.”
Contrary to market expectations, the Fed tightened its policy rate by 25 bps to 2.25-2.5%. That was the fourth time the US federal funds rate was hiked this year, up by a total of 100 bps from 1.25-1.5% last January.
At the secondary market on Friday, the 182-day paper led gains, increasing 17.6 bps to close at 6.536%. It was followed by the yield on the 91-day Treasury bill which rose 15.9 bps to 5.81%.
Also picking up were yields on the 364-day, two-, three-, four-, five-, seven- and 10-year papers, gaining 7.4 bps, 6.1 bps, 6.4 bps, 4.3 bps, 1.8 bps, 0.5 bp and 3.4 bps, respectively, to fetch 6.777%, 6.837%, 6.94%, 6.995%, 7.029%, 7.063% and 7.059%.
Meanwhile, the 20- and 25-year bonds saw their yields decline by 4.6 bps and 5.8 bps, respectively, to end with 7.448% and 7.475%.
Moving forward, the shortened workweek due to the holiday season “could lead to some reduction in trading activities” this week and next week, according to RCBC’s Mr. Ricafort.
“[E]asing inflation due to latest peso appreciation and decline in global oil prices could help in sustaining most long-term PHP BVAL yields at the lowest levels in about 2.5-3 months,” he said.
Mr. Ricafort also noted that to date, yields at the long end are already down by around 1.2 percentage points from near decade-highs posted two months ago. At the same time, a softer inflation print could also “help in limiting/tempering any upside for shorter-term tenors,” he said.
Meanwhile, the bond trader expects yields to move “sideways with a strong upward bias due to the holidays and liquidating positions for the banks.”