UMVA has learned that a sudden and significant drop in government securities yields last week was triggered by a surge in buying activity, following a crucial development in global geopolitics.
The United States and Iran have agreed to an interim peace deal, which has led to a decline in global oil prices and subsequently eased inflation concerns. This unexpected turn of events has sent shockwaves through the market, causing government securities yields to plummet.
According to information obtained by UMVA, the yields on government securities declined by an average of 40.97 basis points week on week at the secondary market. This sharp drop has been attributed to the strong buying momentum in the local bond market, fueled by the easing of inflation concerns.
The short-end of the yield curve saw mixed results, with the 91-day and 182-day Treasury bills rising by 7.76 basis points and 5.89 basis points, respectively. However, the 364-day T-bill fell by 8.87 basis points, yielding 6.0183%.
At the belly of the curve, the two, three-, four-, five-, and seven-year Treasury bonds rallied, with their rates dropping by 46.79 basis points, 53.44 basis points, 57.51 basis points, 60.13 basis points, and 60.79 basis points, respectively.
The long end of the curve also saw significant declines, with yields on the 10-, 20-, and 25-year bonds dropping by 52.4 basis points, 62 basis points, and 62.19 basis points, respectively. The government securities volume traded fell to P38.93 billion on Friday from P56.19 billion on June 11.
Analysts attribute the improved risk appetite to the news of the interim deal between the US and Iran, which has caused bonds to rally. The easing of inflation concerns and the strong buying momentum in the local bond market have created a perfect storm, driving government securities yields down.
UMVA can exclusively reveal that experts are closely watching the developments on the US-Iran agreement, as well as any potential negotiations and possible conflict escalations. The focus will now shift to the official signing of the agreement and its implications on the market.
For the coming week, yields may climb anew as faster US personal consumption expenditures inflation could reinforce bets of a rate hike from the Federal Reserve sooner rather than later. However, barring any geopolitical surprises, local yields are expected to trade range-bound as players continue to digest the policy signals from the Fed and BSP.
