Yields on government debt go up on inflation bets

YIELDS on government securities (GS) climbed last week on expectations of faster March headline inflation.

GS yields rose by 3.7 basis points (bps) on average week on week, based on PHP Bloomberg Valuation Service Reference rates as of April 5 published on the Philippine Dealing System’s website.

Rates at the short end of the curve were mixed, with the 91-day paper going up by 2.73 bps to 5.7527%. Meanwhile, yields on the 182- and 364-day Treasury bills (T-bills) fell by 2.39 bps and 6.83 bps, respectively, to 5.8942% and 6.0057%.

At the belly of the curve, the rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) jumped by 5.57 bps (to 6.0982%), 6.55 bps (6.1573%), 7.01 bps (6.2015%), 7.24 bps (6.2554%), and 7.71 bps (6.3133%), respectively.

The 10-year T-bond likewise rose by 9.91 bps to 6.3313%, while the 20- and 25-year papers went up by 1.49 bps and 1.67 bps to 6.2772% and 6.2731%, respectively.

GS volume traded fell to P11.32 billion on Friday from P17.29 billion on March 27.

“Markets were on a defensive mode for the first trading week of April as most players opted to stay on the sidelines ahead of the March CPI (consumer price index) print due on Friday,” ATRAM Trust Corp. Chief Investment Officer Alessandra P. Araullo said in a Viber message.

“Market was expecting a 3.8% inflation rate, but the actual report showed a slightly lower number,” ING Bank N.V. Manila Branch Senior Economist Nicholas Antonio T. Mapa said in an e-mail. “I think the global developments continued to overshadow domestic factors, however.”

Philippine CPI accelerated to 3.7% year on year in March from 3.4% in February. This was slower than the 7.6% clip in the same month last year.

This was within the Bangko Sentral ng Pilipinas’ (BSP) 3.4-4.2% forecast for the month and was slightly below the 3.8% median estimate in a BusinessWorld poll conducted last week. March also marked the fourth straight month that inflation was within the BSP’s 2-4% target range.

For the first quarter, inflation averaged 3.3%. The BSP expects inflation to average 3.6% this year.

“Sentiment appears to be factoring a potential delay in the Federal Reserve rate cuts while rising energy costs have also fueled concerns about global inflation,” Mr. Mapa said.

“Fed officials still believe that the three cuts for 2024 are still a good baseline projection. But most of them say that the road to the ideal target inflation will be bumpy and that they are not in a rush to cut,” Ms. Araullo likewise said.

The Fed last month kept its target rate at the 5.25%-5.5% range for a fifth straight meeting.

For this week, all eyes will be on the BSP’s policy meeting on April 8, Monday, the analysts said.

Mr. Mapa added that GS yields will likely continue to take their cue from global developments.

“The BSP is already widely expected to pause, and this will undoubtedly be factored into trading,” he said. — K.K.P.D. Mendoza