Gov’t debt yields go up on Fed bets --[Reported by Umva mag]

YIELDS on government securities (GS) mostly rose last week as better-than-expected US jobs and inflation data dampened bets of a big rate cut by the US Federal Reserve.

Bond yields, which move opposite to prices, went up by an average of 3.95 basis points (bps) week on week, based on the PHP Bloomberg Valuation Service Reference Rates as of Oct. 11 published on the Philippine Dealing System’s website.

The short end of the yield curve ended mixed, with the 91-day Treasury bills (T-bills) falling by 7.22 bps to fetch 5.0431%. Meanwhile, the 182- and 364-day T-bills climbed 15.47 bps and 10.8 bps to 5.4469% and 5.6166%, respectively.

At the belly, yields rose across all tenors. Rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) rose by 7.36 bps (to 5.56%), 6.99 bps (5.6012%), 5.74 bps (5.6299%), 4.36 bps (5.6504%), and 2.02 bps (5.6874%), respectively.

At the long end, the yield on the 10-year debt paper declined by 2.59 bps to 5.7317%, while rates of the 20- and 25-year bonds went up by 0.28 bp (to 5.9214%) and 0.2 bp (5.9215%), respectively.

Total GS volume traded stood at P52.22 billion on Friday, lower than the P53.18 billion recorded as of Oct. 4.

Benchmark yields were higher last week after as markets repriced their US rate cut bets, Alessandra P. Araullo, chief investment officer at ATRAM Trust Corp., said.

“Key market movers [last] week were the release of the Fed minutes and the US CPI (consumer price index) prints,” Ms. Araullo said in a Viber message.

“Fed Chair Jerome H. Powell already commented that 25-bp rate cuts may be more likely for November and December. The strength of the recently released jobs data also leans against the likelihood of a larger rate cut in November,” she added.

Minutes of the September meeting showed that a “substantial majority” of US Federal Reserve officials supported the hefty 50-bp rate cut to start the turn toward easier monetary policy, there appeared more universal agreement that the initial move would not commit the Fed to any particular pace of rate reductions in the future, Reuters reported.

Meanwhile, US CPI rose by 0.2% in September after 0.2% in August, the Labor department’s Bureau of Labor Statistics said. On an annual basis, September inflation picked up 2.4%. That was the smallest year-on-year increase since February 2021 and followed a 2.5% advance in August.

“Secondary T-bonds traded defensively to start the week after the spike in US yields [on Oct. 4] as the US nonfarm payrolls saw a 254,000 increase versus the 150,000 expected. Retail Philippine government bonds traded on a knee-jerk response to higher US rates,” Security Bank Corp. Vice-President and Head of Fixed Income Dino Angelo C. Aquino said in an e-mail. 

“With the impression that the Fed remains focused on the labor market, expectations remain intact for a 25-bp cut by the Fed next month. Local markets took the news in stride and saw continued buying momentum,” he added.

For this week, the market will monitor the Bangko Sentral ng Pilipinas’ (BSP) policy meeting on Wednesday, both analysts said.

“With the BSP meeting, the local market will continue to track US bond movements given the lack of fresh leads,” Mr. Aquino said. “Market is pricing in a 25-bp cut by the BSP on Oct. 16 after September inflation surprised to the downside at 1.9%. Market guidance is still biased for a gradual rate reduction which would be supportive for local bonds.” — J.R.C. Alvarez with Reuters

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