Domestic bond swap results, caution over Fed drive yields on state debt lower

YIELDS on government securities drifted downwards last week as results of the bond swap failed to excite investors who were cautious on an impending interest rate hike in the United States.

Bond yields, which move opposite to prices, dipped 12.15 basis points ( bps) on the average week on week, according to data from the Philippine Dealing & Exchange Corp. as of Sept. 11.

“Bond swap was perceived to be not providing the buying trend that was expected of it, probably because there’s not much yield returns given to those with existing bonds at the exchange,” said Noel S. Reyes, chief investment officer at Security Bank Corp. Yields drifted lower on Tuesday after the government announced that it will issue P263 billion in 10- and 25-year Treasury bonds (T-bonds) in exchange for eligible bonds offered by investors worth P237 billion.

The benchmark bonds were priced at corresponding coupon rates of 3.625% and 4.625% amid strong demand from the market. Total tenders of eligible bonds reached P388 billion.

In an e-mail, Nicholas Antonio T. Mapa, associate economist at the Bank of the Philippine Islands ( BPI), said that yields “were on the uptrend, reacting to the new rates from the bond exchange as well as to higher US Treasuries.”

“Rebounding oil prices were also a reason for the yields to move higher,” he added.

At the secondary market on Friday, the yields of the 10-year bond and 364-day Treasury bill (T-bill) dropped by 53.02 bps and 52.22 bps, respectively, from a week ago, settling at 3.7298% and 1.89%.

They were followed by the 182- day and two-year debt papers, respectively losing 29.86 bps and 10.54 bps to give 1.4797% and 3.125%.