Yields on gov’t debt down after Federal Reserve hike

YIELDS on government securities fell last week following less hawkish remarks from US Federal Reserve Chair Janet L. Yellen following the US central bank’s move to hike interest rates last Wednesday.

Rates of government debt papers declined by an average of 8.13 basis points mostly due to decreases at the long end, according to data from the Philippine Dealing and Exchange Corp. as of March 17.

“Prior to the US monetary policy meeting, many were expecting the Federal Reserve to hint on a faster pace of monetary tightening due to stronger-than-expected US labor reports and a chorus of hawkish remarks from various US policy makers,” Land Bank of the Philippines (Landbank) market economist Guian Angelo S. Dumalagan said in an e-mail.

Before the Federal Open Market Committee’s announcement of a 0.25% rate hike on March 15, traders were cautious over a full percentage hike, driven by the strong US job growth and rising wages.

“There’s nothing new, traders were confident to take positions on the rise in yields, so people were unloading and trying to be cautious...the hike was fully priced in,” said a bond trader.

Security Bank Chief Investment Officer for Asset Management Noel S. Reyes agreed that traders were actually more bearish on the rate hike, noting that Ms. Yellen only confirmed a neutral announcement.

The bond trader added that markets were expecting Ms. Yellen to announce the timeline of future rate hikes, but “the statements from Yellen were less hawkish.”

The secondary market on Friday showed little gains for yields on the 91- and 182-day Treasury bills (T-bill), which gained 5.21 bps and 10.57 bps, respectively, to close at 2.28% and 2.53%. Yields on the 364- day T- bill and the two-, three-, four-, five-, seven-, 10-, and 20-year Treasury bonds (T-bonds) were mostly flat from the previous week, posting declines of 7.68 bps, 13.04 bps, 0.32 bps, 11.89 bps, 46.17 bps, 2.61 bps, 14.29 bps, and 1.07 bps, respectively.

For next week’s trading, the bond trader said the market will turn to the local front for fresh leads, in particular the Bangko Sentral ng Pilipinas’ policy meeting this Thursday.

For his part, Mr. Dumalagan said the central bank’s policy meeting may do little to government yields unless officials hint on a rate hike in the coming months.

“[This] week, GS yields might recover, as investors might opt to take profit after [last] week’s price rally. Views of more US fiscal stimulus and higher global inflation might also push GS yields higher,” Mr. Dumalagan added.

Security Bank’s Mr. Reyes said investors will be looking at developments on the tax reform bill currently pending in Congress once they return from recess after the Holy Week. —