Debt yields end week flat
DEBT YIELDS ended flat last week following a 50-basis-point (bp) rate hike by the central bank, even as July inflation breached the official target and economic growth fell below expectations.
Prices of government securities (GS) inched upwards as yields dropped by an average of 1.84 bps week on week, data from the Philippine Dealing & Exchange Corp. as of Aug. 10 showed.
“GS yields moved sideways [last] week,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (LANDBANK). “[I]nflation exceeded market estimates, leading the Bangko Sentral ng Pilipinas (BSP) to hike rates by 50 bps.”
“While expectations of another rate hike from the BSP pushed yields higher last Thursday, the increase in yields was not sustained due to the country’s weaker-than-expected gross domestic product (GDP) growth in second quarter of 2018,” he added.
For Carlyn Therese X. Dulay, first vice-president and head of institutional sales at Security Bank Corp.: “Market was flat to slightly higher on the liquid GS this week on the back of a 50-basis point hike in overnight rate by the Monetary Board (MB) on Thursday, consistent with market consensus.”
“The latest hike brings the overnight rate to 4%, with a chance that further movement will be done in the next MB meeting in September,” added Ms. Dulay.
Michael L. Ricafort, economist at Rizal Commercial Banking Corp. (RCBC), concurred: “Most yields eased last Friday, a day after the [50-bp] policy rate hike and also a day after the weaker-thanexpected GDP growth of 6%...”
Mr. Ricafort said the tightening is “seen to help stabilize inflation and inflation expectations” and that the BSP has also signalled readiness for further policy action “as needed” in order to keep price growth within the 2-4% target.
In a report last week, the Philippine Statistics Authority (PSA) said consumer prices rose 5.7% in July, faster than 5.2% headline print in June and 2.7% logged in July last year. It has picked up for the seventh consecutive month on a year-on-year basis.
On Thursday, the MB decided to raise policy rates by 50 basis points, its third consecutive tightening move this year amid efforts to curb inflation which has been
piercing the central bank target for five months straight.
Rates now stand at 4.5% for overnight lending, 4% for overnight reverse repurchasing and 3.5% for the overnight deposits.
At the same time, the government reported that the economy grew 6% in the second quarter, lower than the 6.6% recorded in the first quarter and the same period in 2017.
Growth was slowest in three years, falling short of the 7-8% target by the government and was also below 6.8% market expectations. For the first half, the economy grew by 6.3%.
At the secondary market on Friday, yields went down across all tenors except for the fiveyear which gained 23.27 bps to 6.1375%.
For those at the short end, the 91-, 182- and 364-day Treasury yields lost 5.50 bps, 8.03 bps and 1.13 bps, respectively, finishing with 3.1859%, 4.1211% and 4.8572%.
At the belly, the yields on the two-, three-, four-, and seven-year Treasury bonds (Tbonds) were down by 9.80 bps (4.9476%), 6.07 bps (5.0613%), 1.96 bps (5.9643%), and 0.83 bp (6.2250%), respectively.
At the long end, the 10- and 20year T-bonds decreased by 2.50 bps and 5.89 bps, respectively, to yield 6.425% and 7.4161%.
Going forward, LANDBANK’s Mr. Dumalagan said that majority of local and foreign economic data are still pointing to higher GS yields.
“US and Eurozone inflation data are expected to show upbeat readings, supporting views of tighter monetary policy settings ahead. The increase in yields might be capped by lingering geopolitical tensions abroad.”
RCBC’s Mr. Ricafort expects yields to continue moving “slightly lower” this week.
“[I]f the peso exchange rate continues to stabilize among the best levels in 2 months, amid the recent decline in global crude oil prices at near 2-month lows and the resulting slight declines in US government bond yields recently, as the trade war between the US and China could slow down both global economic growth and inflation,” he said.
For Security Bank’s Ms. Dulay: “Next week, market will remain range bound at current levels, dependent on the auctions of both Treasury bills and a 5-year FXTN (fixed-rate Treasury note) reissuance, though there should be more liquidity flowing into the system with the FXTN 7-51 maturity on August 18. US CPI (consumer price index) and risk headlines are also due out Friday evening.”