Yields end flat as growth falls below expectations

YIELDS on government securities (GS) were flat last week as they tracked auction results and amid lower-than-expected Philippine economic growth and soft US data.

On average, GS yields, which move opposite to prices, fell by 2.34 basis points ( bps) week on week, data from the Philippine Dealing & Exchange Corp. as of May 19 showed.

“GS yields fell [ last] week due to soft US reports on inflation and retail sales as well as weaker- thanexpected Philippine GDP ( gross domestic product) growth in the first quarter,” said Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines (Landbank). “Weak US data reduced the chances of a rate hike in June 2017. The drop in yields was trimmed on Friday due to profit taking.”

“Yields traded lower week on week, tracking Treasury movement and also due to the strong demand and acceptance of P15 billion of the new 20-year FXTN ( fixed rate Treasury notes) 2021 which printed at 5.25%, well within market expectations,” said Carlyn Therese X. Dulay, vicepresident and head of institutional sales at Security Bank Corp.

“GDP data printed [ last] week at 6.4%, the slowest in 1.5 years, versus consensus at 6.7%.”

At the secondary market on Friday, in the short end of the curve, yields on the 91-, and 182day Treasury bills (T-bills) gained 66.12 bps and 3.13 bps to 2.7217% and 2.8667%, respectively. The rate of the 364-day paper declined 0.78 bps to 2.8228%.

In the belly, yields on the two-, three-, four-, and five-year Treasury bonds ( T- bonds) slipped, respectively shedding 104.82 bps ( 3.4000%), 8.63 bps ( 3.8851%), 4.82 bps (4.0565%), and 6.21 bps ( 4.2026%). On the other hand, rate of the seven-year paper went up by 4.28 bps to 5.0339%.

In the long end, the 10-year bond saw its yield increase by 0.75 bps to 5.0504% while yield on the 20-year T-bond also went up by 27.60 bps to 5.5493%.

Sought for an outlook for this week, Landbank’s Mr. Dumalagan said: “[ Y]ields might show some upward correction, as the minutes of the recent US monetary policy meeting might confirm views that the US Federal Reserve remains on track to hiking interest rates a few more times this year.”

Security Bank’s Ms. Dulay said: “Expect market to trade rangebound [this] week as market participants take their cue from the scheduled treasury bill auction.”