Sluggish bond market seen in Q3

Activity in domestic bond markets should remain sluggish in the third quarter pending the US central bank’s decision to increase interest rates, according to the latest Market Call report.

“The bond markets are likely to be dull in Q3 as investors fret over the Fed (US Federal Reserve) rate hike and the Greek debt crisis,” First Metro Investment Corp. (FMIC) and the University of Asia & Pacific (UA&P) said in the report.

FMIC- UA& P said ample liquidity should help keep yields in check despite the exit of a number of foreign investors.

“Domestic savings driven by robust OFW (overseas Filipino workers) remittances and BPO (business process outsourcing) earnings should keep yields in check,” FMIC and UA&P said.

“Besides, the entry of GSIS (Government Service Insurance System) and SSS (Social Security System) into the secondary market provides additional large demand for long-dated tenors and would also contribute to limiting upticks in the long-end of the curve,” they added.

Last week, yields for Treasury bills fell across the board, allowing the government to make a full award of P20 billion. Tenders reached P58.65 billion during the auction or almost three times the P20-billion offering.

Last month, the yield for three-year Treasury bonds climbed 3.09 percent from 3.06 percent. The government also made a full award of the T-bonds at P25 billion after tenders reached P62.897 billion.

The Bureau of the Treasury said last week it was studying when it would conduct a bond swap of up to P300 billion after securing approvals from the Bangko Sentral ng Pilipinas and the Malacañang.

The government plans to implement the debt exchange before the Fed raises interest rates to boost trading volumes in the domestic bond market.

The US central bank has left interest rates near zero following the global financial crisis of 2008. The Fed then implemented a massive bond- buying program to pump money in the ailing US economy.

In May 2013, global financial markets were sent reeling after the Fed hinted it could start withdrawing its stimulus as the US economy showed signs of recovery.

It wasn’t until January of last year when the Fed gradually decreased its assetbuying program and finally ended this in October. However, markets remained volatile as investors awaited when the US central bank would increase interest rates.