Debt yields mixed ahead of Jackson Hole speech

YIELDS on government securities closed mixed last Friday in anticipation of US Federal Reserve Chairperson Janet Yellen’s speech in the Fed’s annual symposium in Jackson Hole, Wyoming.

Data from the Philippine Dealing and Exchange Corp. (PDEx) as of Aug. 26 showed yields on government debt papers rising by an average of just 1.93 basis points ( bps) week on week.

“Market was generally quiet with thin liquidity,” said Carlyn Therese X. Dulay, vice-president and head of the Institutional Flows Desk of Security Bank Corp.’s Treasury Group.

The sentiment was echoed by Jonathan L. Ravelas, chief market strategist of BDO Unibank, Inc.: “Markets appear to be defensive; markets appear tentative.”

The Jackson Hole symposium drove sentiment for most of last week, with Ms. Yellen and other policy makers expected to give hints on the Fed’s next move. After its lift-off last December, the US central bank has not raised rates thus far this year.

But the head of the US central bank and other policy makers said on Friday that the Fed is getting closer to raising interest rates again in comments that left the door open for a hike as early as next month.

Ms. Yellen told a global monetary policy conference that the case for a rate increase had grown stronger, while Fed Vice Chair Stanley Fischer suggested a move could come at the central bank’s September policy meeting if the economy was doing well.

Although US government data earlier on Friday showed the economy growing only sluggishly in the second quarter, Ms. Yellen said a lot of new jobs were being created and economic growth would likely continue at a moderate pace.

“I believe the case for an increase in the federal funds rate has strengthened in recent months,” Ms. Yellen said in a speech at the Fed’s annual monetary policy conference in Jackson Hole, Wyoming. Ms. Yellen said the Fed already thinks it is close to meeting its goals of maximum employment and stable prices, and she described consumer spending as “solid” while noting business investment was weak and exports had been hurt by a strong US dollar.

But she did not give guidance on what the central bank needs to see before raising rates. Following her remarks, investors continued to bet there were roughly even odds of an increase at the Fed’s December policy meeting.

At the belly, the yield on the two-year Treasury bond (T-bond) fell by 1.79 bps to 2.1954%, and the three-year T-bond dropped by 8.25 bps to fetch 2.9246%.

In contrast, the four-year Tbond gained 11.05 bps to yield 2.837%, while the five- and sevenyear securities saw their rates increase by 20.28 bps and 5.06 bps to 3.1125% and 3.2335%, respectively.

The 10-year T-bond also rose by 2.41 bps to fetch 3.4051% and the 20-year T-bond gained 6.45 bps to yield 3.9882%.

Security Bank’s Ms. Dulay said the rise in bond yields was “due to hawkish Fed comments and

the US Treasury sell-off that followed.”

Meanwhile, yields on Treasury bills (T-bills) stayed mostly flat ahead of the large volume of 10— year bonds maturing on Sept. 4, Security Bank's Ms. Dulay said.

The 91- and 182- day T- bills dipped by 45.18 bps and 4.11 bps to fetch 1.4696% and 1.875%, respectively.

On the other hand, the 364-day papers saw its yield rise by 33.38 bps to 2.1487%.

For this week, Security Bank's Ms. Dulay said market players will await more developments amid the lack of solid leads.

BDO's Mr. Ravelas added that yields are expected to consolidate following Ms. Yellen's statements over the weekend. —