Debt yields end flat

Yields on government securities (GS) traded on the secondary market continued to move sideways because traders were waiting for the release of the government's planned loan program for the first quarter.

On average, the GS rate increased week-on-week by 1.48 basis points (bp), according to the reference values ​​of the Bloomberg Valuation Service (BVAL) of PHP on 28 December, published on the website of the Philippine trading fund.

"The returns were stable last week because market participants did not expect any new news / catalyst on the market," said First Metro Asset Management, Inc. (FAMI).

Traders also stayed on the sidelines for the release of the loan program of the Bureau of the Treasury (BTr) for the first quarter of 2019.

"So instead of placing / investing the money before the end of the year, we expect the market participants to wait for this planned loan, and there are even P70B bonds that will expire in February 2019, so expect more loans to refinance, "said FAMI.

In the first three months of 2019, the government wants to deposit funds in the amount of P360 billion – P240 billion via treasury bills (T-bills) and P120 billion from the sale of government bonds (T-bonds). For the whole year, the state plans to borrow a total of P1.89 trillion to finance its spending program.

"There were transactions in the three, five and 10-year newspapers, but not so much to reduce returns, as the market is still expecting two rate hikes for the first half of 2019," said the FAMI.

On the secondary market, yields on the 91-day and 182-day T-bills declined by 3.4 basis points and 2.2 basis points to 5.78% and 6.51% respectively. Meanwhile, the 364-day paper yield increased by 0.60 bp to 6.78%.

Bonds on the edge of the curve rose, except for the seven-year papers, which saw the yield decline drop from 0.20 bp to 7.06%. The biennial and triennial T-bonds yielded 6.89% and 6.98%, respectively an increase of 4.80 bps and 3.6 bps. The four-year and five-year papers were noted at 7.02% and 7.04% respectively, also 2.1 bps and 0.80 bp higher than last week.

Longer bonds increased, with the 10-year and 20-year bonds ending at 7.07% and 7.49% respectively, 0.60 bps and 4.3 bps.

Jonathan L. Ravelas, chief market strategist at BDO Unibank, Inc. Said: "The prospect of a stable to lower inflation should offer a potential to bring interest rates down."

He said inflation was in line with the Monetary Board's (MB) decision to keep interest rates unchanged, "likely next auction [yields will move] sideways down. "

At the last meeting of 2018, the MB decided to halt the rate of interest rate hikes because inflation was becoming less moderate. The main policy rate was maintained at a range of 4.25-5.25%, while inflation in November fell to 6%, after a peak of nine years with 6.7% in September and October. – Carmina Angelica V. Olano

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