Yields on gov’t securities climb after BSP decision

YIELDS on government securities (GS) traded on the secondary market continued to climb last week following the Bangko Sentral ng Pilipinas’ (BSP) decision to raise interest rates anew amid rising inflation.

On average, GS yields rose by 23.43 basis points ( bp) week-onweek on Friday as bond prices of most papers dipped from weekago levels, data from the Philippine Dealing & Exchange Corp. showed.

First Metro Asset Management, Inc. (FAMI) said the BSP rate hike pushed up GS yields and improved sentiments of “the market hoping for another two rate hikes this year.”

“Investors remained in the short-end of the curve, especially “in a market where there are increasing rates,” it added.

For Carlyn Therese X. Dulay, head of Institutional sales at Security Bank Corp.: “The hawkish tone with the BSP rate hike caused yields to rise…with steeper levels on the intermediate portion of the curve.”

Last Wednesday, the BSP’s Monetary Board raised policy settings by another 25 bps during its fourth review for the year, similar to its move in May, to curb future inflation and keep local price yields competitive.

Yields now stand at 4% for the overnight lending rate, 3.5% for the overnight reverse repurchase rate, and 3% for the overnight deposit rate. The BSP also tightened rates by 25bp during their May 10 policy review.

Prices of widely used goods rose by 4.6% in May, the fastest climb seen in at least five years. This brought the year- to- date inflation tally to 4.1%, higher than the central bank’s 2- 4% target.

The BSP’s decision also came a week after another 25-bp increase in rates in the United States, with Federal Reserve chair Jerome H. Powell hinting at more rate hikes in the coming months as the US economy performs “very well.”

At the secondary market, movement was focused in the short end to the belly of the curve. Treasury bills (T-bill) saw their rates rise, with the 91-day papers climbing the most, adding 64.77 bps to 3.95%. Meanwhile, the 182-day and 364-day

T- bills jumped 57.80 bps and 2.28 bps to fetch 4.24% and 4.31%, respectively.

Bonds at the belly and long end of the curve also surged. The two-year and three-year Treasury bonds (T-bond) both yielded 5.03%, up 42.40 bps and 6.85 bps, respectively. Meanwhile, the seven-year and 10-year T-bonds fetched 6.21% and 6.91%, which were 22.50 bps and 70.54 bps higher than week-ago levels.

This week, analysts said yields will continue to rise.

“Expect bond yields to continue to inch upward ahead of the T-bills auction, which is expected to print at 5-10 bps higher than previous levels, as well as the 5-year notes auction with market consensus at 5.675-5.85 bps,” Security Bank’s Ms. Dulay said.

“The soon to be released auction schedule for the second half of the year may add upward pressure to yields,” she added.

For its part, FAMI said yields will climb on expectations of “another 1-2 interest rake hikes in the second half of the year. The market is expecting BSP to raise 50 bps more this year, on top of the 50 bps hike implemented during the first half,” it said. —