Yields on government debt end mixed
YIELDS ON government securities (GS) ended mixed last week following a sell-off in US Treasuries as traders priced in more aggressive interest rate hikes by the Federal Reserve.
GS yields, which move opposite to prices, went up by a week-on-week average of 5.01 basis points (bps), the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website as of Jan. 21 showed.
Tenors at the short end of the curve fell at the end of trading on Friday. Yields on the 91-, 182- and 364-day Treasury bills dropped by 6.55 bps, 2.67 bps, and 3.36 bps to 0.8783%, 1.0979% and 1.4473%, respectively.
Meanwhile, the belly of the curve increased as the rates of the two-, three-, four-, five-, and seven-year Treasury bonds (Tbonds) jumped by 9.17 bps (to 2.4090%), 9.29 bps (3.0586%), 8.66 bps (3.6520%), 7.03 bps (4.1220%), and 3.56 bps (4.6504%), respectively.
The long end of the curve also climbed. The 10-, 20-, and 25-year debt saw their yields rise by 13.3 bps (to 4.9573%), 8.15 bps (5.0894%), and 8.56 bps (5.0808%), respectively.
“Yields were mixed in the previous week with belly and longer securities drifting higher amid US Treasuries’ sell-off streak,” First
Metro Asset Management, Inc. (FAMI) said in an e-mail.
“Markets priced in faster US Federal Reserve (US Fed) hikes in line with persistently high inflation sending US 10-year to its highest yield since January 2020.”
FAMI added that proceeds from the fixed-rate Treasury note 10-54 that matured recently helped temper the sell-off in local bonds amid rising US yields.
Meanwhile, a bond trader attributed last week’s yield movement to growing views of more aggressive rate hikes from the Fed this year as well as inflationary concerns after international crude prices returned to their November peak levels.
“The upward movement was mostly observed in the belly of the curve and long-term yields as these drivers are highly seen to exert pressures on domestic inflation,” the trader said in an e-mail interview.
“Short-term yields, however, dropped after BSP (Bangko Sentral ng Pilipinas) Governor [Benjamin E.] Diokno remained fairly dovish in his latest policy signals,” the trader added.
Yields on US Treasuries rose last week as traders adjusted to the possibility that the Fed will hike rates more aggressively to temper rising inflation, Reuters reported.
Benchmark 10-year US note yields reached 1.902% in overnight trading on Wednesday, highest in two years or since January 2020.
The Fed is scheduled to meet on Jan. 25-26, which could provide additional clues for an interest rate hike as early as March.
Meanwhile, the BSP chief signaled that a rate hike in the first half of the year may not be possible as the central bank wants to wait for a firmer economic recovery and for unemployment to fall.
For this week, the bond trader said local yields might move with an upward bias as the Fed is expected to make more hawkish statements after its policy meeting this week.
“However, the increase in GS yields might be limited due to some caution ahead of the Philippine GDP (gross domestic product) report and lingering concerns over the local COVID-19 situation. Market participants remained fixated on the potential policy cues from the US Federal Reserve while closely monitoring the local COVID-19 situation,” the bond trader added.
For FAMI, the liquidity from the maturing five-year papers will keep support for the front end and belly of the curve.
“Meanwhile, longer bonds will continue to be subjected to developments in global bonds space until we have stronger catalysts in the local front.”
The Philippine Statistics Authority is scheduled to report fourth-quarter and full-year 2021 GDP data on Jan. 27. —