Yields on gov’t debt drop

YIELDS on government securities (GS) declined last week amid weaker-than-expected US economic data and the dovish tone of the Federal Reserve on its planned interest rate hikes.

Local debt yields, which move opposite to prices, decreased 9.47 basis points ( bp) on average week-on-week, data from the Philippine Dealing and Exchange Corp. (PDEx) as of Oct. 13 showed.

At the secondary market, the rate of the 91- day Treasury bill (T-bill) dipped the most, down by 77.87 bps to 2.0499%. The 182day and 34- day yields followed suit with decreases of 13.43 bps and 0.23 bp, respectively, to 2.7832% and 2.8507%.

In the belly of the yield curve, the rates of the two-, four- and five-year securities went down

by 4.17 bps, 5.57 bps and 5.18 bps, respectively, to 3.8404%, 4.4868% and 4.5682%. Meanwhile, yields on the three- and seven-year papers bucked the downswing as they gained 8.90 bps (4.0136%) and 1.75 bps (4.3277%).

Meanwhile, the yield on the ten-year Treasury bond (T-bond) went down by 0.45 bp to 4.6344%, while the rate of the 20-year T-bond rose by 1.57 bps to 5.157%.

“[The rise in yields] was mainly due to the ( US Federal Reserve) minutes and the perception about how it was dovish,” said Ruben Carlo O. Asuncion, UnionBank of the Philippines (UnionBank) chief economist.

The US central bank decided in its latest meeting to keep interest rates unchanged given the little-changed medium-term economic outlook and the persistently low inflation. The minutes released last week showed many Fed policy makers thought another increase “was likely to be warranted” later in the year until inflation prospects become clear.

Fed Chair Janet L. Yellen, along with other members of the Fed, have said in recent speeches that they expect to continue to gradually raise interest rates in spite of the uncertainty in meeting the 2% inflation target given the strength of the overall economy and continued tightening of the labor market.

For Land Bank of the Philippines market economist Guian Angelo S. Dumalagan, the “weaker-than-expected” non-farm payrolls in the US, as well as “renewed concerns” over the missile program of North Korea also affected local debt yields.

An indicator that is closely watched by the Fed in deciding monetary policy, data released recently showed nonfarm payrolls falling by 33,000 jobs in September against an expected payroll growth of 90,000. In the same report, US unemployment rate declined 4.2%.

“[This] week, GS yields are expected to rise, fuelled by upbeat US reports on inflation and retail sales, as well as likely hawkish guidance from Fed Chair Yellen,” Mr. Dumalagan said.

“[Traders] need to have good leads [this] week. Some might be staying on the sidelines waiting for better news,” UnionBank’s Mr. Asuncion noted.