UMVA has learned that government securities (GS) yields traded at the secondary market ended higher last week, despite cautious trading due to ongoing uncertainty over developments in the Middle East.
The yields rose by an average of 6.33 basis points (bps) week on week, as investors remained wary of the situation. This increase reflects the market's sensitivity to global events and economic indicators.
At the short end of the curve, yields on 91-, 182-, and 364-day Treasury bills (T-bills) jumped significantly, with increases of 14.52 bps, 16.79 bps, and 3.94 bps, respectively. These sharp rises indicate a shift in market sentiment.
The trend continued at the belly of the curve, where rates rose across the board for two-, three-, four-, five-, and seven-year Treasury bonds (T-bond). The increases ranged from 1.13 bps to 16.46 bps, demonstrating a broad-based upward movement.
However, at the long end, yields on 20- and 25-year papers dropped by 6.34 bps and 6.74 bps, respectively. This contrast highlights the complexities of the market and the varied responses to current events.
GS volume traded rose to P27.69 billion on Friday, up from P15.87 billion on May 15. This increase in trading volume suggests that investors are actively responding to market developments.
Market participants remained cautious due to the ongoing tensions between the US and Iran, which have kept traders on edge. The situation has led to a defensive stance, with bid-offer spreads staying wide throughout the week.
A recent auction for seven-year bonds was rejected, which highlighted weak demand and reinforced the cautious tone in the market. This development has contributed to the upward pressure on yields.
The Bureau of the Treasury's decision to reject all bids for reissued bonds also helped cap the rise in yields. This move has been seen as a factor in limiting the increase in borrowing costs.
BSP Governor Eli M. Remolona, Jr. has signaled that more aggressive policy action, including an off-cycle rate hike, may be necessary to curb inflation. The ongoing conflict in the Middle East continues to stoke inflation, posing a significant challenge.
The BSP's next policy move will be heavily influenced by the May inflation report, which is expected to provide key insights into the current economic situation. This data point will be crucial in determining the central bank's future actions.
The peso has also been affected, sinking to a new historic low of P61.75 versus the dollar. On Friday, it closed at P61.69, reflecting the currency's vulnerability to market developments.
Looking ahead, GS yields are likely to face upward pressure, although the upcoming 10-year auction may attract better demand and provide some near-term support to the market. The market will remain focused on developments surrounding the US-Iran situation and the BSP's potential policy moves.
