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Government debt yields drop on safe-haven demand

YIELDS ON government securities (GS) fell on average last week as market players continue to buy safe-haven assets following the central bank’s rate cut earlier this month.

GS yields fell by an average of 5.5 basis points (bps) on a week-on-week basis at the secondary market, based on the PHP Bloomberg Valuation Service Reference Rates as of Nov. 27 published on the Philippine Dealing System’s website.

Yields were lower than week-ago levels, except for those on the 91-day Treasury bills (T-bills) and the 10-year Treasury bonds (T-bond), which rose by 4.7 bps and 0.7 bp, respectively, to 1.131% and 2.941%.

At the short end, rates on the 182- and 364-day T-bills declined by 0.1 bp and 5.4 bps to 1.428% and 1.704%, respectively.

At the belly, yields on the two-, three-, four-, five-, and seven-year T-bonds fell by 4.1 bps (1.912%), 3.3 bps (2.19%), 2 bps (2.443%), 2.4 bps (2.639%), and 3.7 bps (2.838%), respectively.

At the long end, rates on the 20- and 25-year papers yielded 3.858% and 3.834%, down by 20.7 bps and 24.6 bps compared to a week ago.

“Dealers and investors alike continued to put their excess cash to work amid the Bangko Sentral ng Pilipinas’ (BSP) accommodative stance permitted by a benign inflation outlook,” Robinsons Bank Corp. peso sovereign debt trader Kevin S. Palma said in a Viber message on Friday.

The BSP’s policy-setting Monetary Board on Nov. 19 trimmed the rates on the overnight reverse repurchase, lending, and deposit facilities by 25 bps to 2%, 2.5%, and 1.5%, respectively.

The latest easing move followed a “prudent pause” by the central bank since its June meeting. Benchmark interest rates have already been slashed by 200 bps thus far this year.

At that meeting, the central bank also upgraded its inflation forecast for this year to 2.4% from the 2.3% it gave in the October review. Headline inflation averaged 2.5% as of October this year.

“[B]ond yields are still expected to move in a tight range amid strong two-way demand as bond bulls and profit takers continue to collide,” Mr. Palma said of this week’s outlook.

Meanwhile, Security Bank Corp. First Vice-President and head of Wholesale Treasury Sales Carlyn Therese X. Dulay said yields “will likely move sideways” this week “with heavy support concentrated on the short-end of the [yield] curve.”

“Although the BSP has telegraphed that it still has room to move in case of further economic slumps, the likelihood of this diminished and market players would think it more prudent to wait for firmer leads before repositioning, especially on the belly to long end of the curve,” Ms. Dulay said in an email. — Lourdes O. Pilar

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