YIELDS on government debt securities ended up mixed last week with short-end papers getting higher rates amid expectations of US dollar strengthening and long-term bonds garnering interest on the back of easing inflation.
On the average, debt yields rose by 8.73 basis points (bps)
week-on-week, data from the Philippine Dealing & Exchange Corp. as of Dec. 12 showed.
“We saw massive yield curve flattening with the short dates rising as foreign players continued to shun the short end of the curve on expectations of dollar strength moving forward,” said Nicholas Antonio T. Mapa, chief market strategist at the Bank of the Philippine Islands’ (BPI) Financial Markets Group.
“In the past, foreign investors sat on the short-end of the curve in anticipation of peso strength. With the US primed to hike rates soon and the US dollar receiving added boost from the fall in global crude oil prices, short dates are now out of fashion.”
Referring to long-term Treasury bonds (T-bonds), Mr. Mapa noted: “The long-end of the (yield) curve saw interest as the BSP (Bangko Sentral ng Pilipinas) lowered its inflation expectations for the next three years, making the long-end securities attractive once more.”
Carlyn Therese X. Dulay, senior assistant vice president and head of Institutional Sales at Security Bank Corp.’s Treasury Group, was of the same opinion: “There is limited interest in short-end securities because the yield is no longer attractive to investors.”
“Though liquidity plays a part, most buyers and market players would rather lock in longer dated securities... especially given the low inflation and interest rate environment.”
Asked to comment on the impact of the credit rating upgrade by Moody’s Investors Service, Ms. Dulay said: “The unexpected timing of the Moody’s upgrade caused yields to dip by 2-3 bps across the board (on Thursday),” adding that the muted reaction was due to most banks having “closed out positions because of the Christmas season.”
BPI’s Mr. Mapa likewise noted that the yield curve on Friday’s trading was “roughly unchanged” as the credit rating upgrade only “gave investors the chance to unload securities to willing takers.”
Last Thursday, Moody’s raised the country’s long-term foreign currency rating to Baa2 with a “stable” outlook, from the Baa3 grade with a “positive” outlook that was issued in October last year. The global debt watcher cited the government’s improved fiscal management, continued prospects for strong economic growth and the country’s limited vulnerability to global risks as the main drivers for the ratings upgrade.
The peso, meanwhile, closed at P44.58 against the greenback on Friday, weaker than the previous week’s close of P44.54 per dollar.
The BSP’s Monetary Board, for the second consecutive time, decided to take a pause from policy tightening as inflation continues to be “manageable,” with risks to the inflation outlook remaining “broadly balanced over the policy horizon.”
It cut inflation forecasts to 4.2% from 4.4% for this year, 3.0% from 3.7% for 2015 and 2.6% from 2.8% for 2016.
At the secondary debt market, the yield on the 91-, 182- and 364-day Treasury bills shot up by 45 bps, 31 bps, and 15.50 bps, respectively, to fetch 2.1000%, 2.2250% and 2.2050%.
The four- and five-year Treasury bonds (T-bonds) respectively fetched 3.1250% and 3.2718%, up by 2.14 bps and 1.06 bps.
At the long-end, the yield on the 10-, 20-, and 25-year papers respectively edged up by 0.79 basis point (to 3.6900%), 2.50 bps (to 5.0000%) and 4.04 bps (to 4.5019%).
On the other hand, the yield on the two- and seven-year T-bonds fell by 1 basis point (2.4650%) and 5 bps (3.7000%).
The 3-year T-bond yield was stationary at 2.9250%.
For this week, Mr. Mapa said, “We could see the yield curve flatten some more as dealers snatch up the long-end although strong two-way interest will remain. Traders now look forward to supply issues, waiting for the (Bureau of the Treasury) to announce its borrowing program for the first quarter of 2015.”
source: Businessworld
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