Yields on government debt increase

YIELDS ON government securities (GS) went up last week as inflation continued its uptrend to reach a 26-month high in February.

GS yields, which move opposite to prices, rose by an average of 12.92 basis points (bps) week on week, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates as of March 5 published on the Philippine Dealing System’s website.

Yields on benchmark tenors increased on Friday from their Feb. 26 finish, except for those on the four-, five-, and sevenyear Treasury bonds (T-bonds), which declined by 0.46 bp, 2.59 bps, and 0.25 bp, respectively, to 2.7486%, 3.0011%, and 3.4789%.

The largest increases were observed in the long end of the yield curve, particularly the 20- and 25-year T-bonds which saw their rates go up by 41.06 bps (to 4.8707%) and 55.84 bps (4.8716%), respectively. The yield on the 10-year debt paper also increased by 8.76 bps to 3.9806%.

Meanwhile, the two- and threeyear T-bonds were quoted at 2.185% and 2.4865%, respectively, rising by 6.99 bps and 3.29 bps.

The shorter termed Treasury bills (T-bills) likewise posted increases in their yields. This was led by the 364-day paper’s 12.79-bp increase to 1.6834%. The 91-day T-bills also rose by 8.54 bps (to 1.0816%) and the 182-day securities added 8.19 bps (1.195%).

“Yields inched up further as investors await the February inflation data which came out at 4.7%, broadly in line with estimates but still faster than the previous month... The recent uptick in prices put upward pressure on yields and effectively on the government’s borrowing cost,” First Metro Asset Management, Inc. (FAMI) said in an e-mail.

“Inflation erodes your real interest rate. As investors’ inflation expectations adjust higher, yields will continue to move higher in the secondary market as well,” ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said.

The 4.7% headline inflation rate in February marked the fifth straight month of acceleration in the rise in prices of goods, the Philippine Statistics

Authority reported on Friday. The figure was also the fastest in 26 months or since the 5.1% rate in December 2018.

The February result was within the Bangko Sentral ng Pilipinas’ (BSP) forecast range of 4.3%-5.1% for the month. It brought the year-to-date inflation average to 4.5%, also higher than the BSP’s 2-4% target for the year.

BSP Governor Benjamin E. Diokno has said the rise in inflation was caused by supply side shocks and would not merit a monetary response “unless they lead to second-round effects.” —