Yields flat on lack of leads

YIELDS ON government securities (GS) ended flat on Friday from week-ago levels as investors wait for fresh leads that would spur demand for debt papers.

GS yields went up by an average of 1.4 basis points (bps) on average week on week, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates of Oct. 16 published on the Philippine Dealing System’s website.

Yield movements were mixed in the secondary market. At the short end of the curve, the 91- and 182-day Treasury bills (T-bills) inched up by 1.3 bps and 1.2 bps to yield 1.19% and 1.601%, respectively. Meanwhile, the 364-day paper saw its yield fall by 1.5 bps to 1.812%.

At the belly of the curve, the rates of the three- and four-year Treasury bonds (T-bonds) increased by one basis point to 2.282% and 1.7 bps to 2.493%, respectively. The yields on the two-year T-bonds dropped by 1.7 bps to fetch 2.025%, while those on the five- and seven-year debt papers went down by 0.2 bp to 2.642% and 2.8 bps to 2.784%, respectively.

At the long end of the curve, the 20- and 25-year bonds saw their yields go up by 13.2 bps (3.925%) and 6.7 bps (3.909%), respectively. The 10-year paper went the other direction, falling by 3.9 bps to fetch 2.873%.

“Yields traded narrowly [last] week as a result of the lack of clear drivers to show direction. The slate of economic data has remained clear as well (up until early [this] week), which has caused market participants to remain subdued,” said Security Bank Corp. First Vice-President and head of Wholesale Treasury Sales Carlyn Therese X. Dulay in an e-mail.

“Uncertainty is keeping sentiment defensive for now with most staying in the sidelines, particularly for those who have already de-risked,” she added.

Last week saw the release of several reports that bore mixed news for the Philippine economy. The Bangko Sentral ng Pilipinas (BSP) reported on Monday that the country’s net foreign direct investment (FDI) inflows reached a seven-month high of $797 million in July. This brought net FDI inflows for the first seven months of the year to $3.795 billion, 11% lower than the $4.259 billion logged in the same period in 2019.

Meanwhile, the BSP on Thursday reported a decline in cash remittances in August after two straight months of recovery. Money sent home by overseas Filipino workers through banks reached $2.483 billion during that month, 4.1% lower compared with the same month last year. For the first eight months, cash remittances were down 2.6% to $19.285 billion.

On the other hand, the International Monetary Fund released its latest World Economic Outlook report on Tuesday where it downgraded its forecast for Philippine gross domestic product (GDP) this year to a 8.3% contraction from the -3.6% outlook it gave in June.

The government wants to borrow around P3 trillion this year from local and foreign lenders to help fund its budget deficit expected to hit 9.6% of the country’s gross domestic product.

In a Bloomberg interview on Wednesday, Finance Secretary Carlos G. Dominguez III said the government might tap the BSP for fresh cash again next year “if the economy doesn’t perform well,” adding it could also return to the commercial debt market. 

The government earlier this month received a P540-billion advance from the BSP to help plug the budget deficit amid the crisis. The BSP has already lent P840 billion to the government — just P10 billion short of the P850-billion limit set by Republic Act 11494 or the Bayanihan to Recover as One Act.

For this week, the Treasury is set to offer reissued five-year T-bonds worth P30 billion.

“For [this] week, expect movement to remain range-bound as traders wait for clearer direction. The [FXTN-1060] (five-year tenor) auction scheduled [this] week may give the market something to react on, upping activity,” Security Bank’s Ms. Dulay said.

“We will likely see ample demand for the liquid bond. Most players are on wait-and-see mode and any further moves would depend on auction results,” she added.

A bond trader said via Viber that the same movement “can be expected” in the secondary market “until such time we get more clues from the Treasury’s borrowing plans.” — Lourdes O. Pilar