Yields on gov’t debt drop on Fed hike, BSP review
YIELDS on government securities (GS) traded in the secondary market declined last week amid an interest rate hike in the US and the Bangko Sentral ng Pilipinas’ (BSP) decision to keep its policy settings unchanged.
Local debt yields, which move opposite to prices, decreased by 17.5 basis points ( bps) on average week on week, data from the Philippine Dealing and Exchange Corp. ( PDEx) as of March 23 showed.
“Yields fell [ last] week after the policy meetings of BSP and the US Federal Reserve transpired as expected, easing worries over a faster pace of monetary tightening domestically and abroad,” Land Bank of the Philippines (LANDBANK) market economist Guian Angelo S. Dumalagan said.
The Federal Open Market Committee (FOMC) announced at the close of its March 20- 21 meeting that interest rates will increase by a quarter point from 1.50% to 1.75%.
Last week’s interest rate hike marked the Fed’s sixth time to raise borrowing costs since its policy normalization began in December 2015.
Along with the US interest rate hike announcement, the Fed also bared an upgraded forecast for its gross domestic product (GDP) growth for this year to 2.7% from 2.5% in December, citing a “strengthened” economic outlook in the recent months.
On the local front, the BSP, at its Monetary Board meeting last Thursday, kept its policy settings unchanged at 3.5% for the overnight lending rate, 3.0% for the overnight reverse repurchase rate, and 2.5% for the overnight deposit rate. “The BSP kept is policy settings steady, consistent with its initial guidance, while the US Federal Reserve hiked rates even as it maintained its prior view of just three US rate adjustments this year,” Mr. Dumalagan said.
“Before the policy decision of the US central bank, some investors were expecting four US rate hikes in 2018,” he added.
Security Bank Corp. Head of Institutional Sales Carlyn Therese X. Dulay said: “Market sentiment of no BSP policy change and speculation on a possible bond swap drove yields down by 15-18 basis points across the curve on end client demand.”
Meanwhile, a bond trader interviewed via e- mail said bond yields dropped due to a broad risk-off tone, tracking the movement of US Treasuries amid renewed trade war fears.
“[ The] BSP’s no change in policy and release of inflation forecasts also boost buying with bargain hunters out,” the trader added.