Yields on government debt end mixed on rebalancing

YIELDS on government securities ended mixed last week driven by month-end portfolio rebalancing, while market players took profit ahead of the US jobs report late last week.

Bond yields, which move opposite to prices, slid by an average of 0.59 basis points ( bps) week on week, data from the Philippine Dealing & Exchange Corp. as of June 2 showed.

“GS yields fell [ last] week likely because of month-end portfolio rebalancing. Bulk of the decline

occurred on Monday and Tuesday, driven by [the previous] week’s less hawkish US policy meeting minutes,” said Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines (Landbank).

“Yields recovered towards the end of the week due to profit taking ahead of the US non-farm payrolls report,” he added.

For Carlyn Therese X. Dulay, vice-president and head of institutional sales at Security Bank Corp., she said: “Yields were slightly lower across the board as clients began to reposition ahead of the upcoming closure of ODF (overnight deposit facility), causing the short end of the curve to be lifted aggressively.”

“The long end of the curve also traded lower on client demand and limited supply,” Ms. Dulay added. “US Treasury yields also retreated end of last week as economic reports came in mixed prior to Memorial Day weekend.”

“The reissued FXTN 7-59 (seven-year fixed-rate Treasury note) was partially awarded at a high of 4.55% as market participants stayed defensive prior to the US Fed[eral] Reserve’s policy meeting scheduled in mid-June, and ahead of... [US jobs report], which is expected to print at 185,000.”

The Bangko Sentral ng Pilipinas wants to close off trust companies’ access to the term deposit and overnight deposit facilities by this month to focus mopping up excess liquidity through banks alone.

On the other hand, last Tuesday, the government partially awarded the reissued seven-year Treasury bonds (T-bonds) it auctioned off amid weak investor appetite for the papers ahead of the Fed’s policy meeting in mid-June.

The Bureau of the Treasury only raised P4.026 billion out of its programmed P15-billion fund raising from its offer of reissued seven-year securities with a remaining life of six years and 10 months.

US JOBS

Meanwhile, US job growth slowed in May and employment gains in the prior two months were not as strong as previously reported, suggesting the labor market was losing momentum despite the unemployment rate falling to a 16-year low of 4.3%.

Non-farm payrolls increased 138,000 last month as the manufacturing, government and retail sectors lost jobs, the US Labor Department said on Friday. The economy created 66,000 fewer jobs than previously reported in March and April.

Last month’s job gains could still be sufficient for the Federal Reserve to raise interest rates at its June 13-14 policy meeting. The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the workingage population.

Though the unemployment rate fell one-tenth of a percentage point to its lowest level since May 2001, that was because 429,000 people dropped out of the labor force. Average hourly earnings rose 4 cents or 0.2% in May after a similar gain in April, leaving the year- on-year increase in wages at 2.5%.

Analysts likewise noted that the upward revision in US gross domestic product (GDP) growth did not push the yields higher, contrary to expectations.

“Geopolitical concerns and the less hawkish US policy meeting minutes likely overshadowed the impact of stronger US GDP growth,” Landbank’s Mr. Dumalagan said.

MIXED MOVEMENTS

At the secondary market on Friday, the yield on the 182-day Treasury bill lost 47.34 bps, finishing at 2.2052%. The rate of the 364-day papers also fell by 0.11 basis point to 2.8402%.

In the long end, the yield on the 10-year T-bond fell the most, declining by 26.19 bps to 4.7263%. It was followed by the seven-, 20-, and five-year papers, which declined by 5.71 bps, 2.85 bps and 0.01 bp, respectively, to fetch 4.8268%, 5.4554%, and 4.14%.

“Yields in the long end of the curve declined likely because of increased demand for long term notes following the US Federal Reserve’s less-hawkish tone and mixed reports from the US. Geopolitical concerns domestically and abroad also weighed down on yields,” Mr. Dumalagan said.

Meanwhile, the 91- day debt gained 49.72 bps to fetch 2.4411%, while the four-, three-, and twoyear tenors saw their yields increase by 30.15 bps, 4.81 bps and 3.46 bps, respectively to finish at 4.3536%, 3.8872%, and 3.7%.

For this week’s trading, Ms. Dulay said to “expect yields for the Treasury bill auction on Monday to be five to 10 bps lower on heavy demand,” and for the rest of the curve, the movement will depend on the result of the US jobs report and tomorrow’s inflation report for the month of May.

For his part, Mr. Dumalagan, said: “Yields are expected to decline [ this] week due to bets of weak US non- manufacturing data, mixed US labor reports and stable Philippine inflation. The testimony of former US FBI (Federal Bureau of Investigation) Director James Comey [this] week might also weigh down on yields.”