Debt yields fall as BSP cuts inflation estimate

Yields on government securities edged down last week after the central bank lowered its inflation expectations and amid strong demand for the government’s retail Treasury bond (RTB) supply.

Debt yields, which move opposite to price, fell an average of 1.63 basis points (bps) on Friday compared to the previous week, based on benchmark rates from the PHP Bloomberg Valuation service ( BVAL) as of November 19 published on the Philippine Dealing. System website.

At the short end of the curve, 91 and 182-day Treasury bill (T-bill) rates edged up 0.38 bps (to 1.2171%) and 1.34 bps (to 1.4525% ). At the same time, the yield on 364-day T-bills fell 1.65 bps to 1.641%.

Yields on the tenors at the bottom of the curve have mostly increased, with two, three, four, five and seven year maturities increasing by 8.95 basis points (to 2.7218%), 6.64 basis points (at 3.3231%), 4.12 bps (3.8115%), 1.95 bps (at 4.1766%) and 0.55 bps (4.6427%), respectively.

On the long end, the yields on 10-, 20- and 25-year T bonds fell 7.63bp (to 5.0937%), 15.26bp (to 5.0657%) and 17.29bp ( at 5.0529%), respectively.

“Sentiment has improved for local authority securities compared to the previous week. Local bond yields edged down following strong participation in the Treasury Office’s retail Treasury bond auction and the central bank’s downward revision of inflation forecasts for 2021 A merchant said in a Viber message.

The Treasury raised an initial sum of 113.545 billion pesos on Tuesday when it was auctioned for its 5.5-year RTB offer. This offer was oversubscribed more than five times from the initial offer of 30 billion pesos. The RTBs had recovered a coupon rate of 4.625%.

National Treasurer Rosalia V. de Leon said the proceeds from the offering will fund the government budget. RTB’s public offering will continue until November 26, unless it closes early, and the bonds will be issued on December 2.

Meanwhile, the Bangko Sentral ng Pilipinas (BSP) on Thursday kept interest rates at record levels, as expected by the market. BSP Governor Benjamin E. Diokno said continued support is needed to fuel the economic recovery that has already gained momentum.

At the same meeting, the Monetary Council reduced its estimate of inflation for this year to 4.3% from 4.4% previously. Meanwhile, the forecast for 2022 and 2023 has been kept at 3.3% and 3.2%, respectively.

Inflation in the first 10 months was 4.5%, still above the BSP target of 2-4%. Inflation in October stood at 4.6%, down from 4.9% in September, mainly due to a slower increase in food prices.

Falling oil prices after China released some of its oil reserves also affected yield moves last week, Bank of the Philippines Islands chief market strategist Marco Miguel Javier said in a Viber message.

“We are looking for clues from officials of the US Federal Reserve on any plans to accelerate the reduction of asset purchases in a context of US inflation at its highest level in 31 years,” said said Mr. Javier.

Fed Vice Chairman Richard Clarida said they could discuss increasing the pace of the cut at their December meeting, Reuters reported on Saturday.

“For the week, government bond yields are expected to move slightly and perhaps with a slight upward bias as some may take the opportunity to shed their holdings and take profits,” the trader said. .

The trader said the market is awaiting an announcement from US President Joseph R. Biden regarding the successor to Fed Chairman Jerome H. Powell. He added that the market will also continue to examine the demand for RTB and its impact on the supply of bonds. – Luz Wendy T. Noble with Reuters

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