Gov’t debt yields decline

YIELDS ON government securities (GS) fell last week on expectations of rate cuts from the Bangko Sentral ng Pilipinas (BSP).

On average, GS yields dropped 19.2 basis points (bps) week on week, according to the PHP Bloomberg Valuation (PHP BVAL) Service Reference Rates published on the Philippine Dealing System’s website as of April 30.

At the secondary market, GS yields fell across-the-board at the close of trading last Thursday. The 91-, 182- and 364-day Treasury bills (T-bills) declined by 10.5 bps, 9.9 bps, and 28.5 bps, respectively, to 2.974%, 3.064%, and 3.010%.

Debt papers at the belly also dropped with the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) falling 23.1 bps (to 3.077%), 21.2 bps (3.159%), 19.2 bps (3.236%), 18.3 bps (3.305%), and 19.8 bps (3.413%).

The 10-, 20-, and 25-year T-bonds went down 27.3 bps, 18.1 bps, and 15.3 bps from the previous week to fetch 3.490%, 4.321% and 4.465%.

Analysts attributed the decline to investors’ expectations of more aggressive actions from the BSP.

“Follow-through buying pushed yields lower versus [previous] week over BSP’s pronouncements of another possible rate cut and its willingness to utilize a wider set of monetary policy tools at its disposal,” First Metro Asset Management, Inc. (FAMI) said in an e-mail.

“With supportive policies from BSP and strong liquidity in the market, T-bills auction and FXTN 5-74 reissuance were also well demanded,” it added, referring to the five-year T-bonds reissued last week.

In a mobile phone message, Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said the decline was caused by expectations of further cuts on the policy rate and banks’ reserve requirement ratio during a sharp decline in global oil prices that could drag inflation slower.

“The latest $2.35-billion global US dollar bond issuance of the Philippine government earlier [last] week also helped ease local interest rates… as this somewhat reduces the need for the government to borrow from the local market (less crowding out effects) to finance its stimulus measures and COVID-19 (coronavirus disease 2019) program,” Mr. Ricafort added.

In a television interview last week, BSP Governor Benjamin E. Diokno said that monetary easing is “still in the agenda” as the country tries to minimize the impact of COVID-19 on the economy.

The Monetary Board (MB) canceled its May 21 meeting after the 50-bp cut in benchmark policy rates in an off-cycle meeting on April 16 meant to boost lending. The move, along with earlier 50-bp and 25-bp cuts this year, left the reverse repurchase rate at 2.75%, the lowest on record and since the BSP shifted to an interest rate corridor in 2016.

Mr. Diokno said they will observe current developments as monetary policy works with a lag. The MB’s next scheduled policy-setting meeting will be on June 25.

Last week also saw the government offering 10- and 25-year dollar-denominated senior unsecured bonds that will be used for “general purposes, including budgetary support.” The Bureau of the Treasury (BTr) on Tuesday said it sold $1.35 billion and $1 billion for the 25- and 10-year dollar bonds, respectively.

For this week, RCBC’s Mr. Ricafort said markets will look to domestic economic reports such as inflation and the gross domestic product (GDP) data, for leads.

Inflation and factory output data will be reported Tuesday, May 5. Meanwhile, data on trade and GDP will be released on Wednesday and Thursday, respectively.

For FAMI, the lack of catalysts will influence the market to trade sideways and remain at current levels on prolonged extended community quarantine measures.

“We think April inflation will fall within BSP’s projections of 1.9-2.7% despite upward pressure coming from higher food prices and electricity rates. Furthermore, [first-quarter] GDP numbers won’t probably reflect yet the impact of the pandemic hence, macroeconomic indicators slated for release in early May have been broadly priced into current yields’ levels,” FAMI said. — Marissa Mae M. Ramos