Government debt yields mixed as BSP chief turns hawkish

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RETURNS on government securities (GS) were mixed last week after the Bangko Sentral ng Pilipinas (BSP) signaled that it could start rolling back its pandemic-focused ease policy as early as June.

Bond yields, which move opposite to prices, fell 2.84 basis points (bps) on average week-over-week, based on benchmark rates from the PHP Bloomberg Valuation Service as of 29 April published on the Philippine Dealing System website.

Yields on 91-, 182- and 364-day Treasury bills (T-bills) rose 0.35bp, 3.38bp and 1.63bp on Friday from their April 22 close at 1.2501% and 1.5600% and 1.9332%, respectively.

Meanwhile, rates at the bottom of the curve fell as two-, three-, four-, five- and seven-year Treasuries (Treasury bonds) fell 7.75 basis points (to 3.4336% ), 14.73 basis points (4.15% ), 12.44 basis points (4.776%), 9.4 basis points (5.2606%) and 20.79 basis points (5.7214% ), respectively.

In contrast, the long end of the curve saw mixed moves, with 20- and 25-year debt securities rising 24.82 basis points and 14.03 basis points to 6.0548% and 6.05% respectively. .0471%, while the 10-year bond rate fell. by 10.35 basis points to 5.9705%.

Analysts and traders said the slight drop in GS yields last week was mainly due to hawkish comments from the BSP chief.

“GS yields fell slightly during the week on mixed signals on the outlook for a potential BSP policy rate hike in June 2022 and growing concerns over global growth, primarily driven by the ongoing conflict between the Russia and Ukraine and the decline in economic activity in China due to its aggressive COVID-19 response measures,” a bond trader said in an email.

“Market participants remained broadly cautious over the week as expectations for aggressive hawkish policy actions from central banks appear to be limited by declining post-pandemic global growth due to geopolitical tensions and concerns. inflationary,” the trader said.

BSP Governor Benjamin E. Diokno said in a Bloomberg TV interview last week that the central bank may consider raising its record interest rates at its June 23 meeting.

This marks a break with earlier statements by Diokno that the central bank would only consider normalizing its stance in the second half of the year or when the recovery of the Philippine economy strengthens.

The BSP has kept its policy rates at historically low levels since November 2020 to support an economy severely affected by the coronavirus pandemic.

Noel S. Reyes, chief investment officer of Security Bank Corp.’s Trust and Asset Management group, said in a Viber message that the 10-year auction was the main reason yields initially rose but then recovered at the end. of the week.

He said traders were initially focusing on the shorter dates ahead of the 10-year bond auction as they anticipated higher yields for the new issue.

“Furthermore, BSP pushing the possibility of an upcoming rate hike through June has increased, adding to the interest spread for most buy-side investors ahead of the auction,” he said.

“However, after the issuance, demand was good despite higher yields, which helped establish a strong level of support,” Reyes added.

On Wednesday, the Treasury Office raised 17.6 billion pesos from reissued 10-year treasury bills, less than the 35 billion pesos programmed even as bids reached 56.41 billion pesos.

The papers, which have a remaining life of nine years and eight months, were assigned at an average rate of 6.313%, 22.1 basis points higher than the yield quoted on March 29, which was the last time that the series was offered.

Meanwhile, Bank of the Philippines (BPI) chief economist Emilio S. Neri, Jr., said yields for some heavyweights have fallen this week as market participants search for bargains.

For this week, the bond trader expects local yields to move with a bullish bias amid high inflation expectations in April and a 50 basis point rate hike by the Federal Reserve. American during its political meeting on May 3 and 4.

“Strong U.S. jobs reports could also stoke market sentiment in the face of more hawkish policy action from the U.S. central bank,” the trader added.

“In addition to this, the PSA (Philippine Statistics Authority) will also release the inflation report for April [this] the week. A higher-than-expected print could further fuel inflation expectations, which could put additional upward pressure on local rates,” said BPI’s Neri. — Abigail Marie P. Yraola

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