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Yields on government debt end mixed on GDP report

YIELDS on government securities (GS) ended mixed last week after the country’s economic output contracted at a record low.

Debt yields, which move opposite to prices, rose 0.1 basis point (bp) on average week on week, based on the PHP Bloomberg Valuation Service Reference Rates as of Jan. 29 published on the Philippine Dealing System’s website.

UnionBank of the Philippines, Inc. Economic Research said in a text message that major data releases, in particular the gross domestic product (GDP) report, led to market players trimming their positions.

Robinsons Bank Corp. peso sovereign debt trader Kevin S. Palma, meanwhile, noted there was “very strong” two-way interest as the market digested various developments last week.

“First, the market looked to the FOMC (Federal Open Market Committee) meeting where US Fed Chair Jerome Powell reiterated that there will be enough guidance before any actual tapering happens, addressing investor angst on unwinding of stimulus measures,” Mr. Palma said in a Viber message.

“Profit takers took this news as a chance to reduce their risk positions but were then met with cautious buyers when the fourth- quarter Philippine GDP print was released,” he added.

The Philippine economy suffered its worst annual contraction on record in 2020, even after GDP shrank by a slower pace in the fourth quarter, the statistics agency said on Thursday.

Preliminary Philippine Statistics Authority (PSA) data showed the country’s GDP contracted by 8.3% in the fourth quarter, a reversal of the 6.7% growth in the fourth quarter of 2019. However, this was better than the revised -11.4% in the third quarter and the record -16.9% in the second quarter.

For the full year, GDP plunged 9.5% — the steepest economic contraction in Philippine history, according to the PSA, which began collecting annual data in 1947.

Meanwhile, the US Federal Reserve on Wednesday left its key overnight interest rate near zero and made no change to its monthly bond purchases, pledging again to keep those economic pillars in place until there is a full rebound from the pandemic-triggered recession, Reuters reported.

The Fed’s decision to leave its benchmark overnight interest rate in a target range of 0 to 0.25% and to keep buying at least $80 billion of Treasury bonds and $40 billion of mortgage-backed securities each month was unanimous.

At the end of trading on Friday, the rates of the 91-, 182-, and 364-day Treasury bills fell by 7.4 bps, 10.3 bps, and 6.6 bps week on week, respectively, to 1.091%, 1.257%, and 1.530%.

Meanwhile, the three-, four-, five- and seven-year Treasury bonds (T-bonds) saw their yields rise by 1.5 bps (to 1.807%), 1.5 bps (2.084%), 3.2 bps (2.354%), 4.7 bps (2.584%), and 8.3 bps (2.826%), respectively.

At the long end, the yields on the 10- and 25-year bonds increased by 3.8 bps and 3.4 bps, respectively, to 2.937% and 3.967%, while the 20-year paper declined by 0.8 bp to end at 3.932%.

For this week, Mr. Palma expects local bond yields to be range-bound as the market takes its cue from the upcoming auction of reissued 10-year bonds on Tuesday and January inflation data due for release on Friday.

UnionBank said traders are waiting for the inflation report to gauge the Bangko Sentral ng Pilipinas’ policy stance.

The central bank expects headline inflation to have settled between 3.3% and 4.1% in January amid higher energy and food prices. — M.A.P. Soliman

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