Yields on gov’t debt fall

By Carmina Angelica V. Olano
Researcher
YIELDS ON government securities (GS) traded on the secondary market fell across the board as both short- and long-tenored papers saw strong demand last week.
On average, GS yields went down by 25.66 basis points (bp) week-on-week, according to the PHP Bloomberg Valuation Service (BVAL) Reference Rates as of Jan. 18 published on the Philippine Dealing System’s website.
Carlyn Therese X. Dulay, first vice-president and head of Institutional Sales at Security Bank Corp. (Security Bank), said last week’s yields “adjusted lower.”
“Heavy demand from market participants and end clients on short end securities after the successful treasury bill auction last Monday caused yields to adjust accordingly for the rest of the curve,” she said.
In last Monday’s auction of short-term debt papers, the Bureau of the Treasury (BTr) borrowed P22.405 billion, higher than its initial P20-billion program, after the government upsized its award and opened a tap facility for the for 364-day papers. Moreover, it opened an over the counter sale of the 91-, 182- and 364-day instruments to government-owned and -controlled corporations.
National Treasurer Rosalia V. De Leon attributed the huge demand in last week’s auction to the liquidity in the market amid stronger local currency and the rise of the stock market.
Meanwhile, the First Metro Asset Management, Inc. (FAMI) agreed that the higher supply of T-bills pushed yields lower, but for its part added investors favored longer tenors as they continue to digest the government’s positive inflation outlook.
“With the news coming from the Bangko Sentral ng Pilipinas (BSP) that they see inflation for 2019 clocking in at 3.20%, I think the market locked in their funds for a longer duration,” it said.
However, FAMI noted a pullback in yields during the latter part of the week due to some profit-taking activities in the market.
“The yield pulled back a little bit. Maybe because there’s a 20-year bond that will be auctioned this Tuesday.”
The BSP revised down its inflation targets by 2019 to 2020 to 3.18% (from 3.5%) and 3.04% (from 3.3%). This was reiterated by BSP Deputy Governor Diwa C. Guinigundo during his presentation at a Foreign Correspondents Association of the Philippines (FOCAP) event in Makati City last Thursday.
At the secondary market, trading closed on Friday with yields on T-bills down. The one-year debt led the pack with a 37.40-bp decrease to 6.27%, followed by 91-day and 182-day T-bills’ 13.5-bp and 33.3-bp decreases to 5.66% and 6.10%, respectively.
Bonds at the belly of the curve also fell across the board. The two-year and three-year Treasury bonds (T-bonds) yielded 6.23% and 6.28%, down 23.3 bps and 22 bps, respectively. The four-, five- and seven-year papers yielded 6.32%, 6.35%, and 6.41%, which were 17.5 bps, 14.9 bps and 16.4 bps lower than week-ago levels.
Longer-term debt papers also dipped, with the 10-, 20- and 25-year T-bonds yielding 6.48%, 6.82% and 6.89%, down 15 bps, 42.5 bps and 41.5 bps, respectively, from a week ago.
For this week, FAMI expects “yields to go down further but not as steep as last week, as the market awaits the gross domestic product (GDP) data on Thursday.”
For her part, Security Bank’s Ms. Dulay said yields could further dip if the GDP figure and the 20-year bond yield falls within market expectations.
“Expect market to take its cue from this week’s Treasury bill auction, GDP figure and 20-year bond auction…If the 20-year bond [falls] within the [market] expected range of 6.625%-6.75% and the GDP close to the median expectation at 6.2%,” then the yield curve could continue to fall.
This week, T-bills and 20-year bonds auctions are scheduled on Jan. 21 and 22, respectively, while GDP data will be released on Thursday.