Yields on government debt end higher on profit taking

By Marissa Mae M. Ramos
Researcher

YIELDS ON government debt securities ended higher last week as profit taking prevailed among market players ahead of the release of August inflation data.

Debt yields — which move opposite to prices — went up by an average of 6.2 basis points (bps) week on week, the PHP Bloomberg Valuation Service Reference Rates as of Sept. 6 published on the Philippine Dealing System’s website showed.

The secondary market saw mixed movements in terms of yields. At the short end of the yield curve, the 91-, 182-, and 364-day Treasury bills (T-bill) went down by 1.9 bps, 6.6 bps, and 0.6 bp, respectively, to fetch 3.3%, 3.452%, and 3.681%.

At the belly, rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bond) went up by 0.3 bp (3.907%), 3.1 bps (4.023%), 6.3 bps (4.146%), 9.4 bps (4.267%), and 13.7 bps (4.459%), respectively.

At the long end, yields on the 10-, 20-, and 25-year T-bonds climbed 12 bps, 15.8 bps, and 17.2 bps to 4.579%, 4.971%, and 4.962%.

In an e-mail, ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said the recent uptick in yields “has largely been a reaction to global developments.”

“With inflation continuing to trend lower and at least one additional and at least one additional [interest] rate cut and [reserve requirement ratio (RRR)] cut expected from the Bangko Sentral ng Pilipinas (BSP), investors are looking to outside factors for further cues,” Mr. Liboro said.

“The recent sell-off on the back of US Treasuries prompted market actors to lighten on positions, especially given the very strong run that local bonds have had,” he added.

Meanwhile, a bond trader attributed last week’s bond movements to profit taking.

“Yields were generally higher this week as local participants opted to take profits from the rally in bond prices due to the escalation of US-China trade tensions… This was also driven by some positioning ahead of the August inflation report…,” the bond trader said.

The bond trader added that the upward movement of yields was also supported by “positive geopolitical developments abroad” in Hong Kong, Italy, the United Kingdom.

“Toward the end of the week, markets also cheered the scheduled bilateral trade discussions between the US and China [next month],” the bond trader added.

Government data released last Thursday showed Philippine inflation moderating to 1.7% in August — its slowest pace in three years or since the 1.6% in August 2016.

Reacting to the result, BSP Governor E. Diokno said this was “excellent news,” adding the BSP’s Monetary Board (MB) will take this “positive development” into consideration in its Sept. 26 policy meeting.

Last month, Mr. Diokno has already hinted on a possible 25-bp cut in benchmark rates as well as another cut in big banks’ RRR as early as the upcoming MB meeting.

On the external front, representatives from the US and China are set to meet by mid-September to prepare for more trade talks in October. The timing of the announcement came about as the US imposed a fresh 15% tariff on Chinese goods, with China doing the same on some US goods on a $75-billion list.

Meanwhile, Chinese Premier Li Keqiang was quoted last Friday in news reports as saying Beijing supports the Hong Kong government’s move to withdraw the controversial extradition bill, which ignited three months of protests in the former British colony.

In the United Kingdom, British Prime Minister Boris Johnson will try to call a snap election on Wednesday after lawmakers seeking to prevent him from taking Britain out of the European Union without a divorce deal dealt him a humbling parliamentary defeat last week.

Mr. Johnson has previously promised to take the UK out of the EU on Oct. 31 with or without an agreement.

“Given the volatility in global bond yields and the uncertainty of what type of bond supply there could be in the fourth quarter, T-bills have continued to offer investors a low-risk place to park their cash,” ATRAM’s Mr. Liboro said, adding that T-bills have “remained an attractive option for those looking to stay liquid” given that banks’ time deposits have lowered their rates significantly from last year.