Yields on gov’t debt mixed
YIELDS saw mixed movements last week as investors priced in the escalating trade war between the US and China and after domestic inflation reached a fresh five-year high.
Prices rose as yields on government securities dipped by 6.16 basis points (bps) on the average week on week, data from the Philippines Dealing and Exchange Corp. as of July 6 showed.
“There were two main factors that affected yields [last] week: the US-China trade war and the country’s higher-thanexpected inflation,” said Land Bank of the Philippines (LANDBANK) market economist Guian Angelo S. Dumalagan.
“The influence of lingering trade tensions more than offset the impact of the country’s upbeat inflation data, resulting in an overall downward bias in interest rates,” he added.
Last week, the US began slapping 25% customs duties on $34 billion worth of Chinese commodities to which China responded by also imposing 25% border tax on the same amount of American goods that enter their country.
Meanwhile, domestic prices rose at a rate fastest in at least five years in June, the Philippine Statistics Authority reported on Thursday. The 5.2% headline print was beyond market and government expectations.
“Last month’s higher-than-expected inflation increased the yields of some tenors. While market participants expected inflation to pick up, many were surprised that inflation breached the BSP’s forecast range for the month, an occurrence which increases the chances of more rate hikes from the BSP this year,” said Mr. Dumalagan.
Also last week, the Bureau of the Treasury (BTr) rejected all bids for the reissued 10-year bond after investors demanded higher rates for the said tenor. The offer was also undersubscribed, attracting only P14.84 billion in tenders against the P15 billion programmed by the government.
“The 10-year auction rejection due to elevated bids and the higher than expected CPI (consumer price index) data at 5.2% versus market consensus at 4.8% led to more defensive levels and greater selling interest from end clients and market participants,” said Carlyn Therese X. Dulay, first vice-president and head of institutional sales at Security Bank Corp.
THE Philippine Stock Exchange index (PSEi) is likely to continue trading sideways this week as investors anticipate second-quarter results that could push trading volume higher.
The bellwether PSEi dropped 0.64% or 46.86 points to end at 7,186.71 on Friday following the release of inflation data for June, which turned out to be much higher than expected.
The Philippine Statistics Authority reported that inflation picked up to 5.2% last month, a fresh fiveyear high that beat the local central bank’s estimate range of 4.3-5.1% and the Department of Finance’s 4.9% estimate, as well as the 4.7% median in a BusinessWorld poll.
On a weekly basis, the index ended 6.97 points lower or 0.10%, with the industrial sector losing the most at 0.80%, versus the 1.6% gain of the services counter. Turnover slowed to P4.92 billion on average per day, lower by 22% from the week before.
“We started the month slow ending almost unchanged from the close in June. However, the index held support at 7,150 which is impressive despite the very low trading volume that we saw this week. Based on the technicals, the index will continue to trade sideways,” Eagle Equities, Inc. Research Head Christopher John Mangun said in a weekly market note.
Given higher inflation, online brokerage 2TradeAsia.com said people will be tightening their belts or at least cut back on nonessentials. This should prepare investors to put their money in assets with “good inflation hedge.”
“In equities, these are common in real estate assets and companies with solid recurring income sources... While controlling inflation rests on the hands of competent economic managers, it would be best to stay defensive by carefully selecting stocks anchored on business models where demand is supported,” 2TradeAsia.com said in a weekly market note.
Sectors with such demand include food and beverage, telco services, utilities, and fuel.
Philstocks Financial, Inc. said last week that good companies to invest in would be those with strong leasing income streams, such as SM Prime Holdings, Inc., Ayala Land, Inc., Megaworld Corp., and DoubleDragon Properties Corp.
Abroad, leads include developments on the trade war between the United States and China. While analysts noted the trade war has no direct impact on Philippine exports, it still continues to weigh on investor sentiment.
“All told, investors are simply scouting for opportunities to reenter once negative headlines are fully absorbed. In the meantime, eyes are on first-half results and whether listed firms remain on track with their second-half prospects,” 2TradeAsia.com said.
Eagle Equities’ Mr. Mangun placed the index’s immediate support at 7,070, with resistance at 7,340.
“It’s all going to come down to volume, if we see more volume come in then we may end higher but if we get another low-volume week then we will see it come down even further,” Mr. Mangun said.