Gov’t debt yields mixed as market stays volatile

YIELDS on government securities (GS) traded on the secondary market ended mixed last week amid the continued volatility caused by global trade uncertainties and following the jumbo issuance of 10-year papers.

GS yields, which move opposite to prices, inched up by an average of 0.38 basis point (bp) week on week, according to the PHP Bloomberg Valuation Service Reference Rates as of April 25 published on the Philippine Dealing System’s website.

At the short end of the curve, the 91- and 364-day Treasury bills (T-bills) rose by 4.25 bps and 5.21 bps week on week to fetch 5.4558% and 5.7362%, respectively. Meanwhile, the 182-day paper went down by 2.19 bps to yield 5.6089%.

At the belly, rates fell across all tenors. Yields on the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) declined by 1.06 bps (to 5.7546%), 1.24 bps (5.796%), 1.67 bps (5.8517%), 1.78 bps (5.9247%), and 1.43 bps (6.0928%), respectively.

Lastly, at the long end, rates of the 10- and 20-year T-bonds climbed by 3.91 bps to 6.3404% and by 0.28 bp to 6.3217%, respectively. Meanwhile, the 25-year paper inched down by 0.06 bp to fetch 6.3178% last week.

GS volume traded amounted to P35.62 billion on Friday, higher than the P28.33 billion traded a week prior.

The market was defensive last week due to uncertainties surrounding trade relations between the United States and China, a bond trader said in a text message.

“Local bonds remain sensitive to US Treasury moves but yields were generally range-bound this week… Yields remain well supported given the recent relief rally in US rates, but liquidity and activity was particularly thin as most investors stayed on the sidelines,” Dino Angelo C. Aquino, head of fixed income at Security Bank Corp., said in an e-mail.

US President Donald J. Trump asserted in an interview published on Friday that tariff negotiations were under way with China, but Beijing denied any talks were taking place, the latest in a series of conflicting signals over what progress was being made to de-escalate a trade war threatening to sap global growth, Reuters reported.

Mr. Trump told TIME magazine that talks were taking place and that Chinese President Xi Jinping had called him, an assertion he repeated to reporters as he was leaving the White House on Friday morning for Rome to attend the funeral of Pope Francis.

“China and the US are NOT having any consultation or negotiation on #tariffs,” China shot back in a foreign ministry statement posted by the Chinese Embassy in the US. “The US should stop creating confusion.”

On Saturday, Chinese Foreign Minister Wang Yi said Beijing abides by international rules on US-imposed tariffs and would seek solidarity with other countries.

The back-and-forth adds to the substantial uncertainty surrounding Mr. Trump’s erratic tariff policy, not just around China, but also as it pertains to the dozens of countries scrambling to strike their own deals to ease the burden of the hefty import taxes he has unleashed since returning to the White House in January.

Mr. Aquino and the trader both said that GS yields mostly moved sideways last week as the market awaited the result of the Bureau of the Treasury’s (BTr) 10-year bond offer.

“The final amount is around P300 billion, which shows very good demand considering the uncertainties with regards to Trump’s ongoing trade war,” Mr. Aquino added.

The government raised a total of P300 billion via its offering of new 10-year fixed-rate Treasury notes (FXTN), the BTr announced on Friday.

This was 10 times the initial P30-billion program as bids reached P307.05 billion, allowing the Treasury to end the public offer period on April 23, a day earlier than planned.

The BTr already raised an initial P135 billion from the papers at the rate-setting auction on April 15 as tenders reached P197.3 billion.

The notes fetched a coupon rate of 6.375%. Accepted bid yields ranged from 6% to 6.4%, resulting in an average rate of 6.286%.

For this week, GS yields may continue to move sideways, with “choppy” trading likely as players look to the US market for leads, the bond trader said.

“Another thing to watch is if things will improve as the US is trying to soften its [tariff] stance… The wobbly state is resulting in higher inflation risk and is sending US Treasury yields higher,” the trader said.

The market will also monitor the BTr’s bond auction this week “to gauge if there is a supply risk even if they got good demand for the recent offering,” the trader said.

“The market may continue to trade in a range with a bias to the downside in terms of rates given the healthy demand for the new 10-year FXTN,” Mr. Aquino added. — Matthew Miguel L. Castillo with Reuters