Debt yields rise on RTB offering, Powell speech

YIELDS on government securities (GS) rose last week amid strong demand seen for the first retail Treasury bonds (RTBs) offering of the Marcos administration and with the market awaiting more clues on the US Federal Reserve’s policy path.

Debt yields, which move inversely to prices, increased by an average of 6.47 basis points (bps) week on week, based on the PHP Bloomberg Service Reference Rates as of Aug. 26, published on the Philippine Dealing’s Website.

Yields on the short end of the curve climbed the most as the 182-day Treasury bills (T-bills) increased by 19.21 bps (to 3.2516%), followed by the 91-day and 364-day T-bills, which went up by 9.16 bps (2.1447%) and 4.34 bps (3.8085%).

The belly of the curve also rose last week, led by the seven-year Treasury bonds (T-bonds), which climbed by 11.68 bps to yield 5.8643%. Rates of the five-, four-, three-, and two-year T-bonds likewise rose by 8.94 bps (5.5220%), 4.97 bps (5.2525%), 1.99 bps (4.9432%), and 2.31 bps (4.6053%), respectively.

At the long end of the curve, yields on the 10-, 20-, and 25-year papers rose by 7.96 bps (6.0145%), 0.38 bp (6.5791%), and 0.21 bp (6.5673%).

Total GS volume reached P7.967 billion on Friday, higher than the P6.862 billion seen in the week ending Aug. 19.

“The local bond market was mainly on the defensive this past week as market participants looked ahead and anticipated hawkish remarks from US Fed Chair Jerome H. Powell during a conference in Jackson Hole,” a bond trader said in a Viber call.

“Moreover, market players also seemed tied up for the book-building process for the government’s retail Treasury bond offering,” the trader said.

The bond trader said the market was tied up as they expect a “jumbo size” RTB issuance as the rate-setting auction last week was already met with strong demand from investors.

Demand for RTBs rose as global and domestic oil prices climbed again, making the market seek safer investments like government debt.

The government last week raised an initial P162.72 billion from the price-setting auction for its offer of 5.5-year retail bonds as tenders reached P225.32 billion, or more than seven times the P30-billion plan.

The retail bonds fetched a coupon rate of 5.75%, higher than the 4.875% set for the five-year RTBs offered in March.

The offer period for the peso-denominated debt maturing in 2028 is from Aug. 23 to Sept. 2, while settlement is on Sept. 7.

Meanwhile, the Fed began its annual economic symposium in Jackson Hole, Wyoming, on Aug. 26.

Mr. Powell warned in his speech at the event on Friday that the US will see slow economic growth and an increase in unemployment as the central bank continues to raise rates to fight rising inflation.

Mr. Powell said the Fed will raise rates as high as needed and would keep them there “for some time” to bring down inflation.

“Reducing inflation is likely to require a sustained period of below-trend growth. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain,” he said.

The Fed next meets to discuss policy on Sept. 20-21. It has raised rates by 225 bps so far since March, including back-to-back 75-bp hikes in June and July.

A second bond trader said they expect another hike of 50-75 bps at that meeting following the Fed chief’s hawkish tone.

For this week, both traders said anticipation ahead of the Fed’s meeting next month and the conclusion of the RTB offering will mostly drive yield movements this week.

The second bond trader said yields may continue to rise should the Fed remain hawkish, adding that the market is also awaiting the release of the Bureau of the Treasury’s September borrowing schedule.

“[This] week will be more of the same,” the first bond trader said. “Dealers and investors will remain defensive given that we are about to enter a crucial month for monetary policy as both the Fed and the BSP (Bangko Sentral ng Pilipinas) has scheduled to decide on policy rates later next month, so on that note, yields are expected to move sideways with upward bias.” — B.T.M. Gadon