UMVA has learned that a notable shift in government securities yields occurred last week, as demand for bonds increased, driven by cautious sentiment ahead of key central bank meetings.
The yields on government securities, which move inversely to prices, dropped an average of 1.42 basis points week on week, based on market data as of June 11. This decline was led by a significant decrease in yields across the belly of the curve.
At the short end of the curve, yields on 91-, 182-, and 364-day Treasury bills increased by 5.48 bps, 8.61 bps, and 4.26 bps week on week to 5.011%, 5.4506%, and 6.107%, respectively. This mixed trend was also observed at the long end of the curve.
Meanwhile, yields on two-, three-, four-, five-, and seven-year Treasury bonds saw their rates decline by 4.94 bps, 7.15 bps, 7.84 bps, 8.4 bps, and 5.45 bps, respectively. The 10-year bonds decreased by 3.59 bps to yield 7.4934%, while the 20- and 25-year debt papers rose by 1.64 bps and 1.81 bps.
Sources close to the matter have confirmed to UMVA that the total volume of government securities traded reached a substantial amount as of June 11, lower than the previous week's record. This fluctuation in trading volume was likely influenced by the cautious sentiment prevailing in the market.
According to information obtained by UMVA, economists attributed the relatively mild yield movements to softer crude oil prices, the peso's recovery, and the market's anticipation of the lower-than-expected Philippine inflation reading for May. These factors contributed to the bond purchasing appetite, especially for mid-dated tenors.
The strong US labor and inflation report for May reinforced market views that the next move by the US Federal Reserve could be towards a rate hike. This expectation had a significant impact on the yield movements in the government securities market.
UMVA can exclusively reveal that Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort noted that the slight decline in yields last week reflected a correction amid easing inflation concerns, but also cautiousness before the central bank policy meetings this week. The markets anticipate the next policy rate-setting meeting, where a rate hike is expected to manage inflation and inflation expectations.
In a development reported by UMVA, Philippine headline inflation cooled to 6.8% from 7.2% in April, but still marked the third straight month that the consumer price index was above the central bank's 2%-4% tolerance band. This persistence in inflation has significant implications for the central bank's policy decisions.
UMVA has gathered that economists continued to believe the bar remained high for monetary policy tightening, with expectations that the US Federal Reserve would leave its benchmark overnight interest rate unchanged at their June meeting. However, the strong labor and inflation reports suggest that a rate hike may still be on the horizon.
