Yields on government debt end flat

YIELDS on government securities (GS) were mostly flat last week as investors stayed on the sidelines while waiting for the release of key US economic data and the issuance of the new retail Treasury bonds (RTB).

Debt yields, which move opposite to prices, went down by an average of 2.47 basis points (bps) week on week, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates as of March 1 published on the Philippine Dealing System’s website.

Yields on Treasury bills (T-bills) were mixed last week. The rates of the 91- and 182-day papers went up by 10.66 bps and 5.30 bps to 5.7292% and 5.9575%, respectively.

On the other hand, the yield on the 364-day T-bill fell by 2.35 bps to 6.1088%.

Meanwhile, rates of benchmark Treasury bonds (T-bonds) declined. At the belly of the curve, the rates of the two-, three-, four-, five-, and seven-year bonds decreased by 1.31 bps (to 6.1185%), 1.29 bps (6.1509%), 1.31 bps (6.1815%), 1.74 bps (6.2054%), and 2.87 bps (6.2327%), respectively.

At the long end of the curve, the 10-, 20-, and 25-year T-bonds went down by 1.99 bps, 14.99 bps and 15.26 bps to yield 6.2435%, 6.2496%, and 6.2468%, respectively.

GS volume traded stood at P11.25 billion on Friday, down from P17.97 billion on Feb. 23.

“Yields moved quite marginally as local participants stayed on the sidelines ahead of the RTB 30 issuance last week. Moreover, participants remained on the watch for crucial economic data from the US, such as the second release of the US gross domestic product (GDP) and the personal consumption expenditures (PCE) inflation,” a bond trader said in an e-mail.

“Market participants generally remained cautious on the major US economic data releases as these data were seen to influence the future policy moves of the US Federal Reserve, and consequently our local Bangko Sentral ng Pilipinas,” the bond trader added.

The government raised a record P584.86 billion from its offer of five-year retail bonds, the Bureau of the Treasury said last week.

Of the total, P212.72 billion was awarded at the rate-setting auction for the 30th tranche of RTBs held on Feb. 13.

An additional P372.14 billion was raised during the nine-day public offer period, with P128.69 billion of this being new money and P243.45 billion coming from the bond exchange component of the offering. 

The papers carry a coupon rate of 6.25%. The BTr issued the new bonds on Feb. 28.

Meanwhile, US economic growth in the fourth quarter was lowered slightly, but its composition was much stronger than initially thought, which bodes well for the near-term outlook even as activity got off to a weak start because of freezing temperatures, Reuters reported.

GDP increased at a 3.2% annualized rate last quarter, revised slightly down from the previously reported 3.3% pace, the Commerce department’s Bureau of Economic Analysis said in its second estimate of fourth-quarter GDP growth.

Economists polled by Reuters had expected GDP growth would be unrevised.

On the other hand, US prices accelerated in January amid a surge in the costs of services like housing and finance, but the annual increase in inflation was the smallest in three years, keeping a midyear interest rate cut from the Federal Reserve on the table, Reuters reported.

The report from the Commerce department on Thursday also showed consumer spending slowing last month, restrained by decreases in outlays on goods, including motor vehicles, furniture and other long-lasting household equipment.

The PCE price index rose 0.3% in January, the Commerce department’s Bureau of Economic Analysis said. Data for December was revised lower to show the PCE price index gaining 0.1% instead of the previously reported 0.2%. Goods prices fell by 0.2% as the cost of energy dropped by 1.4%, offsetting a 0.5% rise in food prices.

In the 12 months through January, PCE inflation rose 2.4%. That was the smallest year-on-year increase since February 2021 and followed a 2.6% advance in December.

Excluding the volatile food and energy components, the PCE price index increased by 0.4% last month. That was the largest monthly rise since last February and followed a downwardly revised 0.1% gain in December. The so-called core PCE price index was previously reported to have climbed by 0.2% in December.

Core inflation increased 2.8% on a year-on-year basis in January, the smallest advance since March 2021, after rising 2.9% in December. The Fed tracks the PCE price measures for its 2% inflation target. Monthly inflation readings of 0.2% over time are necessary to bring inflation back to target.

Jonathan L. Ravelas, senior adviser at Reyes Tacandong & Co., likewise said in a Viber message that local yield movements were affected by faster US PCE inflation.

Mr. Ravelas added that the 2023 budget balance data also affected the GS market.

The National Government’s (NG) budget deficit narrowed in 2023, but exceeded the ceiling as both revenues and expenditures surpassed the programs, the BTr said last week.

Data from the BTr released on Thursday showed that the budget deficit narrowed by 6.32% to P1.51 trillion in 2023 from P1.61 trillion in the previous year.

However, it exceeded the P1.499-trillion ceiling set by the Development Budget Coordination Committee by 0.85%.

As of end-2023, the deficit as a share of GDP settled at -6.2%, a tad higher than the -6.1% target set by the government but lower than the -7.3% deficit-to-GDP ratio at end-2022.

In December alone, the NG’s budget deficit widened by 5.97% to P401 billion from P378.4 billion in the same month in 2022.

“Last week, the market traded sideways as investors were looking at the US market for direction,” Dino Angelo C. Aquino, vice-president, and head of fixed income of Security Bank Corp., said in a phone interview.

For this week, GS yields may rise, the bond trader said.

“GS yields might move with some upward bias amid an expected uptick in domestic inflation and continued resilience in US labor reports for January,” the trader said.

Headline inflation could have picked up in February after hitting an over three-year low in January, as prices of key food items, fuel, and electricity rose, the central bank said on Thursday.

Inflation may have settled within the 2.8-3.6% range in February, the Bangko Sentral ng Pilipinas (BSP) said in a statement.

The lower end of the forecast would be unchanged from the January print, which was the slowest since October 2020. Meanwhile, a faster rate would mark the first time since September 2023 that the consumer price index (CPI) saw a month-on-month uptick.

Still, February inflation would be significantly lower than the 8.6% print recorded a year ago. If realized, February would mark the third straight month that inflation was within the BSP’s 2-4% target range.

The February CPI data will be released on March 5, Tuesday.

“We expect rangebound market trading this week, with investors focusing more on the movement of the US Treasury rate. At the same time, everyone will look at the seven-year bond auction,” Mr. Aquino added.

On Tuesday, the BTr will auction off P30 billion in reissued seven-year T-bonds with a remaining life of six years and 10 months. — L.O. Pilar with Reuters