YIELDS on government securities (GS) traded at the secondary market closed mostly lower last week in anticipation of the Bangko Sentral ng Pilipinas’ (BSP) third straight rate cut, although its less dovish tone after the policy decision led to some profit taking before the weekend.
GS yields, which move opposite to prices, declined by an average of 3.57 basis points (bps) week on week, based on the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website on Friday.
At the short end, yields ended lower across all tenors, with the 91-, 182-, and 364-day Treasury bills (T-bills) declining by 2.57 bps, 9.09 bps, and 6.28 bps week on week to fetch 5.2321%, 5.3921%, and 5.5357%, respectively.
At the belly, rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) likewise dropped by 5.42 bps (to 5.6198%), 5.11 bps (5.6908%), 4.22 bps (5.7526%), 3.34 bps (5.8095%), and 2.1 bps (5.9011%), respectively.
Meanwhile, the long end was mixed as yields on the 20- and 25-year debt dropped by 1.3 bps to 6.3384% and 1.41 bps to 6.3368%, respectively, while the rate of the 10-year tenor inched up by 1.6 bps to 6.016%.
“The BSP’s third rate cut of the year was widely expected, though the accompanying statement was less dovish than anticipated. While the strong bond issuance initially pushed rates lower, the market quickly refocused on the policy decision, which overshadowed the effects of auction demand and led to curve steepening — with liquidity anchoring the front end, and profit taking pushing yields higher in the belly and long end,” Lodevico M. Ulpo, Jr., vice-president
and head of fixed income strategies at ATRAM Trust Corp., said in a Viber message.
“Yield curve dynamics remained primarily influenced by the BSP’s policy decision and forward guidance, along with liquidity-driven demand-supply conditions in auctions and secondary trading.”
Security Bank Vice-President and Head of Fixed Income Dino Angelo C. Aquino said in an e-mail that the market interpreted BSP Governor Eli M. Remolona, Jr.’s forward guidance after their latest policy decision as “somewhat hawkish,” which caused yields to go up slightly on Friday after declining early in the week following the bond auction.
On Wednesday, the Bureau of the Treasury made a full P35-billion award of its dual-tranche T-bond offer.
On Thursday, the Monetary Board delivered its third consecutive 25-bp cut this year to bring the target reverse repurchase rate to 5%. The BSP has now slashed benchmark borrowing costs by a total of 150 bps since the start of its easing cycle in August 2024.
Mr. Remolona said after the meeting that the latest move puts the policy rate at a “sweet spot” in terms of both inflation and output, signaling that the BSP is nearing the end of its rate-cut cycle. Still, he left the door open to one last reduction within this year to support the economy if needed.
In the near term, Mr. Ulpo said GS yield movements will likely be driven by the BTr’s auctions and policy hints from the BSP.
“While liquidity remains supportive, the BSP’s less dovish stance suggests policy easing may be nearing its limit. This could temper demand for duration and keep investors more defensive on the medium- to long-end,” he said. “We see the yield curve shifting up further as the market prices in upcoming bond supply, with monetary policy likely on hold for the rest of the year.”
Mr. Aquino added that besides the August Philippine inflation report on Friday, the market will also monitor key releases from the United States that could affect the Federal Reserve’s next policy decision, including the latest jobs data. — Matthew Miguel L. Castillo
Yields on government debt end mostly lower amid ‘less dovish’ BSP guidance
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