Yields on government debt slip on Fed, RTB offering

YIELDS on government securities (GS) slipped last week after US Federal Reserve’s rate hike and the announcement of the Bureau of the Treasury’s retail Treasury bond (RTB) offering.

GS yields at the secondary market went down by 1.90 basis points (bps) on average week on week, based on the PHP Bloomberg Valuation (BVAL) Service Reference Rates as of Feb. 3 published on the Philippine Dealing System’s website.

Rates of the short-dated Treasury bills (T-bills) fell last week. Yields on the 91-, 182-, and 364-day T-bills dropped 9.89 bps (to 4.2768%), 5.28 bps (4.9007%), and 8.97 bps (5.305%), respectively.

However, yields on the belly of the curve rose, with the two-, three- four- five, and seven-year bonds gaining 3.06 bps (5.3496%), 4.05 bps (5.5749%), 3.57 bps (5.7181%), 3.77 bps (5.823%), and 4.32 bps (5.9493%), respectively.

Meanwhile, papers at the long end saw mixed results as the rate of the 10-year paper rose 1.78 bps to 6.0449%, while that of the 20- and 25-year debt fell 8.36 bps (6.329%) and 8.94 bps (6.3272%), respectively.

Total GS volume traded reached P9.068 billion on Friday, 6.3% higher than the P8.531 billion on Jan. 27.

ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said overall market sentiment was driven by the Fed’s policy rate hike last week, which was anticipated by traders.

“Softer economic data out of the US over the last few weeks had already caused market estimates to shift towards a consensus of the 25-bp rate hike from the Fed. The in-line event and more dovish tone caused a continuation of the recent rally in both global bonds and equities,” Mr. Liboro said in an e-mail.

The US central bank last week raised its federal funds rate by 25 bps to a 4.5% to 4.75% range, bringing total hikes since March 2022 to 450 bps.

The move was a step down from the 50-bp hike it delivered in December 2022, which came after four consecutive 75-bp increases as the Fed sought to bring down inflation.

Investors took a dovish cue from remarks by Fed Chair Jerome H. Powell after the meeting as he acknowledged that inflation was starting to ease, although he also said it is still unclear how high rates still need to go.

The Fed statement also indicated that future increases would be in 25-bp increments.

Meanwhile, a bond trader said in a Viber message that market activity last week was relatively quiet compared with the previous one.

“[This] resulted in firmer bids for the GS market, although bonds have been rallying for weeks even before the [Fed] meeting,” the trader said.

The bond trader added that the RTB offering announced by the Treasury last week also affected trading.

The Treasury announced on Friday that it will offer 5.5-year fixed-rate RTBs and is looking to raise at least P30 billion, with the rate-setting auction to be held on Feb. 7.

The offer period is scheduled to end on Feb. 17, unless adjusted by the government. The offering also includes a swap option for some bonds maturing this year.

For this week, Mr. Liboro said even if the January headline inflation print, which will be released on Tuesday, comes in above 8%, investors are “looking forward and largely expect a consistent decline in headline inflation towards yearend,” which will continue to fuel the bond-buying momentum seen recently.

“Buying momentum will remain strong, with investors hoping to participate in a 5-year RTB, which is likely to price at 6% or just below it,” Mr. Liboro added.

The bond trader said yields could be “steady with an upward bias” as inflation likely remained elevated last month. — Ana Olivia A. Tirona