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Yields on gov’t debt rise

YIELDS on government securities (GS) traded in the secondary market climbed last week following the result of Treasury bureau’s bond auction and hopes of slower rate hikes by the US Federal Reserve.

Bond yields, which move opposite to prices, rose by an average of 14.23 basis points (bps) week on week, according to the PHP Bloomberg Valuation Service Reference Rates as of Oct. 28 published on the Philippine Dealing System’s website.

Rates climbed almost across the board, except that of the five-year Treasury bonds (T-bonds), which dropped by 1.74 bps to 6.7549%.

Yields at the short end of the curve went up, with the 91-, 182-, and 364-day papers gaining 19.49 bps, 15.52 bps, and 96.44 bps to 3.7503%, 4.5345%, and 4.888%, respectively.

At the belly, the two-, three-, four-, and seven-year Treasury bonds saw their rates climb by 1.64 bps (5.9251%), 2.38 bps (6.3028%), 0.29 bp (6.5533%), and 0.27 bp (7.0822%), respectively.

At the long end, rates of the 10-, 20-, and 25-year papers went up by 5.76 bps (7.4399%), 8.24 bps (7.2864%), and 8.25 bps (7.2794%).

Total GS volume traded increased to P4.62 billion on Friday from P4.58 billion seen on Oct. 21.

“Most trading interest was centered around the 13-year auction from the BTr (Bureau of the Treasury). Volatility in global rates continued to be a factor as well,” ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said in an e-mail.

“The 13-year auction cleared towards the high side at an average rate of 7.88%… At these levels, notwithstanding ongoing volatility and the likelihood of inflation to inch higher over the short term, investors began to see value,” Mr. Liboro said.

The government raised just P26.139 billion from its offer of reissued 25-year papers last week, less than the programmed P35 billion, even as total bids reached P46.988 billion.

The bonds, which have a remaining life of 12 years and 11 months, were awarded at rates ranging from 7.625% to 8%, bringing the average to 7.887%, which was 3.8 bps lower than the 7.925% quoted for the bond when it was first offered on Sept. 28, 2010 and also 11.3 bps below the 8% coupon for the issue.

“Since there is no local data, GS tracked the movements in global bond space. Last week, US Treasury yields dropped on increasing bets for a dovish pivot or a possible pause in rate hikes in the near future,” the bond trader said in a Viber message.

Weakening economic data in the United States last week affirmed expectations that the Fed might begin to consider smaller rate hikes, with officials also flagging the need to consider slower tightening to prevent a recession.

The market widely expects the Fed to raise rates by 75 bps for the fourth straight time at its Nov. 1-2 meeting and to continue hiking until next year. The Fed has increased borrowing costs by 300 bps since March.

For this week, the bond trader said yields may continue to go up on expectations of another rate hike by the Bangko Sentral ng Pilipinas (BSP) next month.

BSP Governor Felipe M. Medalla last week said the central bank could match the Fed’s rate hikes point by point to support the peso and prevent its depreciation from adding to inflation risks.

He said the Monetary Board may raise benchmark interest rates by 75 bps at their Nov. 17 meeting if the Fed delivers a hike of the same magnitude at their own review this week.

The BSP has hiked benchmark rates by 225 bps since May.

Meanwhile, Mr. Liboro expects reduced liquidity and market activity given the shortened trading week.

“With inflation likely to breach the 7% level for October, we could see a retracement higher once more over the coming weeks, but we expect yields to consolidate at these levels with buying interest starting to build up once more,” he said.

He said yields could peak next month and move lower towards the end of the year on expectations of slower inflation by 2023.

A BusinessWorld poll of 14 analysts last week yielded a median estimate of 7.2% for Philippine headline inflation in October.

If realized, this would be faster than the 6.9% seen in September and the 4% last year. It would also be the quickest in over 14 years or since the 7.8% print logged in December 2008, which was during the height of the global financial crisis.

This would also mark the seventh straight month that inflation breached the central bank’s 2-4% target.

The Philippine Statistics Authority will release October consumer price index data on Friday, Nov. 4.

Philippine headline inflation averaged 5.1% in the first nine months of 2022. The BSP expects inflation to average 5.6% this year and 4.1% in 2023. — L.O. Pilar

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