Gov’t debt yields go down

YIELDS on government securities (GS) mostly went down last week on strong demand and as players repositioned as the month closed and following updates on the country’s potential re-inclusion in the JPMorgan Chase & Co. Government Bond Index-Emerging Market (GBI-EM) series.

GS yields, which move opposite to prices, fell by an average of 2.69 basis points (bps) week on week at the secondary market, according to PHP Bloomberg Valuation Service Reference Rates as of Feb. 27 published on the Philippine Dealing System’s website.

At the short end of the curve, yields on the 91- and 182-day Treasury bills (T-bills) slipped 0.07 bp to 4.4312% and 1.95 bps to 4.5242%, respectively. Meanwhile, the rate for the 364-day tenor went up by 2.62 bps to 4.6208%.

Rates at the belly declined across the board, with the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) dropping 0.84 bp (to 5.1526%), 3.12 bps (5.3151%), 4.28 bps (5.4422%), 4.7 bps (5.5515%), and 4 bps (5.7332%), respectively.

At the long end, yields on 10-, 20-, and 25-year debt papers fell by 4.41 bps (to 5.9238%), 4.2 bps (6.5371%), and 4.67 bps (6.5354%), respectively.

GS volume traded increased to P58.58 billion last week from P44.06 billion previously.

“Overall, the week saw downward pressure on yields, especially at the short to belly portion of the curve, driven by strong auction results, sustained liquidity, and the month-end rush,” the first bond trader said in a Viber message.

The trader said both the T-bill and T-bond auctions last week saw strong demand as investors likely wanted to lock in yields at their current levels on expectations that rates would go down further.

“The decent participation in the three-year and seven-year tenor, to a lesser degree, suggested that investors are comfortable with some duration risk, leading to the flattening yield curve for belly tenors later during the week,” the trader added.

“BTr (Bureau of the Treasury) auctions this past week continued to attract robust demand, with most participants channeling excess liquidity into the Philippine peso-denominated government bonds market as bond yields continue to offer attractive spreads over the BSP’s (Bangko Sentral ng Pilipinas) policy rate,” the second bond trader likewise said in a Viber message.

The trader said the country’s potential inclusion in JPMorgan’s GBI-EM Index drove strong demand for tenors at the belly and the long end.

“Sentiment improved midweek after the National Treasurer shared updates regarding the Philippines’ potential inclusion in the JPMorgan Government Bond Index. Estimated inflows of up to $3 billion, if inclusion materializes, would be meaningful for the local market. Beyond the headline number, the structural implication is deeper foreign participation,” Lodevico M. Ulpo, Jr., vice-president and head of Fixed Income Strategies at ATRAM Trust Corp., said in a Viber message.

National Treasurer Sharon P. Almanza told Bloomberg last week that the Philippines could attract about $3 billion in inflows if its government bonds are added to the foreign bank’s emerging-market index, as it would have an initial weight of about 1%. She said an update on the country’s inclusion bid could come as early as this month.

For this week, Mr. Ulpo said the BTr’s bond auction would be a trading driver as this would test demand for tenors at the belly of the curve.

He added that the release of February inflation data on Thursday (March 5) would be a key catalyst for the market. “A downside surprise would reinforce expectations of continued policy easing and support a further bull flattening. Conversely, an upside print could temper dovish expectations and prompt some profit taking.”

“We could expect relatively neutral movements in the coming weeks with broadly stable macroeconomic conditions. However, upside inflation risks could push the long end of the curve higher. Markets appear to be anticipating a faster local inflation print in February, but any surprise to the upside could spur broad risk-off sentiment,” Marco Antonio C. Agonia, an economist at the University of Asia & the Pacific, said in an e-mail.

“Yields will likely trade sideways with a slight upward bias as the BSP’s expectations on the inflation data anticipate higher CPI (consumer price index). The front end of the curve will likely remain anchored by BSP policy expectations, while the long end will take cues from US Treasury movements and global developments,” the first bond trader said. “Overall, barring any surprise data, the yield curve may continue to be stable or trade slightly higher on local CPI data, supported by strong domestic demand.”

The analysts added that market players will also monitor external developments, such as the movements of US Treasuries, geopolitical news, and US economic data releases. — Isa Jane D. Acabal