Yields down on Fed move


Posted on March 20, 2016 07:31:00 PM


GOVERNMENT SECURITIES (GS) rallied last week, with yields dropping as the US Federal Open Market Committee (FOMC) stood pat on its stance, hinting that its interest rate hikes for this year may be less than initially planned.

Debt yields, which are inversely related to prices, declined by 21.14 basis points (bps) on the average week on week, according to data from the Philippine Dealing & Exchange Corp. as of March 18.

Guian Angelo S. Dumalagan, Land Bank of the Philippines (Landbank) market economist, said yields declined because of the “dovish tone” of the Federal Reserve’s statement as it wrapped a two-day policy meeting last Wednesday.

“The US central bank reduced its 2016 inflation forecast and policy makers trimmed their projections for the federal funds rate, suggesting fewer interest rate hikes this year. Majority of the decline occurred in the last two days of the week, with yields dropping by about 26 bps over the two-day period,” Mr. Dumalagan said.

He noted that there was a slight increase in yields prior to the FOMC’s decision on interest rates.

Nicholas Antonio T. Mapa, research officer at the Bank of the Philippine Islands (BPI), said: “Local bond yields tracked the decline in US Treasuries as sentiment shifted from risk off to risk on.” He added that “[the] rise in oil prices, however, capped the fall in yields.”

BPI Asset Management noted in a report that “[f]ollowing the recent FOMC meeting, prices of local fixed income resumed its rally on the back of positive sentiment and renewed risk-taking that brought foreign funds back to the local markets.”

The next FOMC meeting is slated on April 26-27.

Yields on most debt papers saw double-digit declines, with the seven-year Treasury bond (T-bond) diving the most, losing 66.20 bps to end at 3.8063%. This was followed by five-year bond, which declined 59.58 bps to 3.6275%; the four-year bond, dropping 53.24 bps to 3.3309%; the six-month Treasury bill (T-bill), which gave up 43.83 bps to 1.5500%; and three-month paper, declining 35.17 bps to yield 1.4183%.

Meanwhile, the 20-year and one-year tenors ended with minimal losses, giving up just 3.33 bps (4.7166%) and 0.34 bps (2.1333%), respectively.

The three-, two, and 10-year bonds, on the other hand, were the only gainers, adding 14.84 bps (3.9967%), 9.17 bps (3.3417%) and 5.17 bps (4.7800%) each, the data showed.

Sought for his outlook for this week’s trading, BPI’s Mr. Mapa said: “We probably will see markets consolidate as volume thins out ahead of the Holy Week.”

Landbank’s Mr. Dumalagan forecasts yields to remain low, but the recovery in oil prices might lift yields slightly, although minimally because “majority of the economic data [this] week are expected to be supportive of lower yields.”

He also expects Bangko Sentral ng Pilipinas’ (BSP) decision on interest rates to not affect the market “as the central bank’s monetary policy settings are widely expected to remain the same.” The BSP meets to review policy anew on Wednesday. Financial markets will be closed starting Thursday in observance of regular Holy Week holidays. -- James Glenn M. Gomez

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