Yields down on thin trade
YIELDS on government securities (GS) slid last week as market activity remained muted following the holidays, with a rally in short-term papers offsetting increases seen for higher-tenored securities.
GS yield went down by an average of 3.09 basis points ( bps), data from the Philippine Dealing & Exchange Corp. as of Nov. 4 showed.
Carlyn Therese X. Dulay, vice-president and head of Institutional Flows Desk of the Security Bank Corp.’s Treasury Group, said there was thin liquidity in the bond market attributed to the shortened trading week ahead of key data and developments overseas.
“[ There are] various risk events including the upcoming US elections and the increasing chances of a US rate hike in December. Market players remained quiet with little incentive to trade, and end clients stayed defensive on their bids given the political uncertainties with the NFP (non-farm payrolls) release due Friday,” said Ms. Dulay.
According to BPI Asset Management’s weekly outlook, investors focused on developments abroad. “Despite political uncertainties in the United States, the market is pricing in a December hike given the strong economic data”, it said.
Large declines seen mainly for the short-tenored Treasury bills (T-bills) drove the broader market’s rally. Yields on the 91- day and 182- day T- bills dropped by 12.32 bps (to 1.4339%) and 8.72 bps ( to 1.5714%), respectively, week on week. On the other hand, the one-year securities went up 1.14 bps to 1.7982%.
For the longer-termed papers, the seven-year Treasury bond ( T- bond) also slid by 38.63 bps from the previous week to yield 3.9548%, while the three-year securities inched down by 0.29 bp to give 3.7039%.
Other papers saw their yields rise, but most increases were marginal and were not enough to offset the rally seen in other securities. The biggest gainer was the four-year T- bond which gained 17.71 bps to yield 3.3104%, followed by the 10-year bond, which went up 5.67 bps to give 3.9906%.
Ms. Dulay said that for this week, the market will take its cue from the non-farm payrolls data released on Friday and the corresponding movement in US Treasuries.
US employers maintained a strong pace of hiring in October and boosted wages for workers, which could effectively seal the case for a December interest rate increase from the Federal Reserve. Non-farm payrolls increased by 161,000 jobs last month amid gains in construction, health care and professional and business services, the Labor Department said on Friday.
The solid labor market fundamentals were also underscored by revisions to August and September data, which showed 44,000 more jobs created than previously reported. Average hourly earnings rose 10 cents or 0.4% in October.
Jonathan L. Ravelas, chief marketing strategist at BDO Unibank, Inc., said the upcoming US elections won’t influence the secondary market at all. “I think it’s more of the uncertainty that’s just keeping people on the sidelines.”
“Despite that inflation remains unchanged at 2.3% we are probably going to see rates to move sideways to up,” Mr. Ravelas said.
He said that with inflation remaining the same as last month, it would not be enough to bring bond yields higher. “We will probably see more of these sideways to up movements in the week ahead.”
Though the US central bank is expected to increase borrowing costs at the Dec. 13-14 policy meeting, that decision will likely depend on the outcome of Tuesday’s election.
Financial markets view Hillary Clinton as the candidate of the status quo, while many investors fear that a Donald Trump victory would carry risks to global trade and growth.