Yields rise on May inflation print

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Yields on government securities (GS) rose last week after inflation hit a three-and-a-half-year high in May.

GS yields, which move opposite to price, rose an average of 6.44 basis points (bps) week-over-week, based on PHP Bloomberg Valuation Service benchmark rates as of 10 June published on the Philippines Dealing System website.

Yields across the yield curve rose week-over-week on June 10, with the exception of one-year debt, which fell 11.32 basis points to 2.1071%.

Yields on 91- and 182-day Treasury bills (T-bills) rose 3.99 basis points and 6.87 basis points, respectively, to 1.4863% and 1.8785%.

The belly of the curve also rose as rates on two-, three-, four-, five- and seven-year Treasury bills (Treasury bonds) climbed 6.14 basis points (to 4.2028%), 10 .53 basis points (4.9159%), 12.69 basis points (5.4828%), 13.98 basis points (5.9056%) and 13.98 basis points (6.4506%) , respectively.

Similarly, the long end rose slightly with 10, 20 and 25 year debt securities rising 4.64 basis points (6.7776%), 4.73 basis points (6.7493%) and 4.57 basis points (6.7554%).

GS volume totaled 6.112 billion pesos on Friday, down from 13.580 billion pesos on June 3.

In an email, Noel S. Reyes, Chief Investment Officer of Security Bank Corp. for Trust and Asset Management Group, attributed the performance in yields to the May inflation data release.

“The CPI (consumer price index) came out as expected, which provided some supportive interest in the new auction supply amid yield consolidation within the curve,” Mr. Kings.

“However, the feared second-round effects of inflation on transportation and commodity costs and more aggressive Fed hikes, faster than the BSP, led to the peso depreciating and demand for GS to get coy and stay within its current yield range,” he added.

“GS returns were mostly sideways as market participants await the next FOMC (Federal Open Market Committee) meeting on Thursday and the BSP meeting next week,” a bond trader said in a Viber post. .

The bond trader said market participants were still waiting for clues on future moves following the central bank’s planned rate hikes.

Headline inflation hit a three-and-a-half-year high of 5.4% in May as food and transport prices soared amid high oil prices, the Authority reported on Tuesday. philippine statistics. This is the fastest pace since the 6.1% recorded in November 2018.

The May print matched the median estimate in a Business world poll and within the Bangko Sentral ng Pilipinas forecast range of 5-5.8% for the month. However, it was the second month in a row that inflation exceeded the central bank’s target range of 2-4% for the year.

Meanwhile, the Treasury Office raised just 25.189 billion pesos on seven-year papers reissued on Tuesday after market participants demanded a higher yield as May inflation topped 5%.

The amount raised was lower than the program by 35 billion pesos despite the total number of tenders reaching 48.80 billion pesos.

The reissued papers, which have a remaining life of three years and eight months, were attributed an average yield of 5.514%, 78.2 basis points higher than the 4.732% quoted for the paper when it was last offer on January 21, 2020.

Those papers would have yielded an average rate of 5.579% had the Treasury issued a full decision last Tuesday.

For this week, Reyes expects market participants to remain cautious and the GS yield curve to remain flat as the BSP is expected to announce two more hikes and a more aggressive increase in the US Federal Reserve’s key rates. .

US inflation hit its highest level in 40½ years at 8.6% in May as food prices soared, fueling bets that the Fed could continue its interest rate hikes by 50 basis points through September to rein in consumer price inflation, Reuters reported.

The Fed’s governing body, the FOMC, is due to meet June 14-15.

Meanwhile, the new BSP governor signaled at least two more interest rate hikes starting this month to temper inflation.

In an interview with Bloomberg on Tuesday, Monetary Board (MB) member Felipe M. Medalla said he was “sure” the BSP will rise this month. He will serve the remaining term of Benjamin E. Diokno, President-elect Ferdinand R. Marcos, Jr.’s new chief financial officer, until July 2023.

Medalla also flagged a “90% chance” of a rate hike in August and hinted at the possibility for more.

The MB, the governing body of the central bank, will meet on June 23.

“The market will try to demand higher returns for [this] week-long auction that will be watched carefully,” Mr. Reyes said.

On Tuesday, the Treasury is expected to offer another seven-year reissued paper, with a remaining life of six years and 11 months, worth 35 billion pesos.

The bond trader also sees continued upward pressure on local yields following expected central bank rate hikes. — MIU Catalog with Reuters

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