Gov’t debt yields go down on de-escalation hopes

YIELDS on government securities (GS) mostly went down last week as market sentiment improved slightly after US President Donald J. Trump said they could end their attacks on Iran within two to three weeks.

GS yields, which move opposite to prices, fell by an average of 4.77 basis points (bps) week on week at the secondary market, according to PHP Bloomberg Valuation Service Reference Rates as of April 1 published on the Philippine Dealing System’s website.

Philippine financial markets were closed on April 2 and 3 for the Holy Week break.

At the short end, yields were mixed. Rates of the 91- and 182-day Treasury bills (T-bills) rose by 0.43 bp to 4.9897% and 5.58 bps to 5.1253%, respectively. Meanwhile, the 364-day tenor slipped 1.02 bps to yield 5.1803%.

Rates at the belly declined across the board, with the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) dropping 5.17 bps (to 5.9636%), 7.53 bps (6.2524%), 8.33 bps (6.4624%), 8.63 bps (6.6218%), and 12.28 bps (6.7919%), respectively.

At the long end, the rate of the 10-year tenor went down by 18.86 bps to 6.8308%, while yields on the 20- and 25-year debt papers rose by 2.09 bps to 7.0237% and 1.27 bps to 7.0168%, respectively.

GS volume traded dropped to P69.43 billion last week from P73.59 billion previously.

“The week started with a defensive tone in the GS market, reflecting global uncertainty and elevated risk premiums. However, sentiment gradually shifted to a more constructive stance. This was driven by ‘risk-on’ positioning following headlines suggesting Donald J. Trump may push for a resolution to the Middle East conflict,” Lodevico M. Ulpo, Jr., vice-president and head of fixed income strategies at ATRAM Trust Corp., said in a Viber message.

“As a result, investors began to price in potential easing of geopolitical risks, which supported bond prices and pulled yields lower toward the latter part of the week.”

However, higher oil prices and uncertainty about inflation kept investors cautious, he said.

The US rescued an airman missing from one of two warplanes downed in Iran, two US officials said, as Mr. Trump and Israel stepped up pressure on Iran to open the strategic Strait of Hormuz or face attacks on energy facilities, Reuters reported.

The airman was the second member of a two-person crew of an F-15 jet that Iran said on Friday was brought down by its air defenses. Reuters reported on Friday that the first member of the crew had been recovered.

Mr. Trump has sent mixed messages ranging from hints of diplomatic progress to threats to bomb the Islamic Republic “back to the Stone Ages” since the US and Iran launched the war on Iran on Feb. 28.

The war has killed thousands, sparked an energy crisis and threatens lasting damage to the world economy after Iran virtually shut the ​Strait of Hormuz, which usually carries about a fifth of global oil and liquefied natural gas.

Meanwhile, the Bangko Sentral ng Pilipinas (BSP) on Tuesday said it expects March inflation to settle within 3.1% to 3.9% due to higher costs for fuel, rice, and electricity and a weakening peso.

At the upper end of the forecast, inflation may have accelerated to its fastest pace in over two years or since the 4.1% in November 2023. It would also match the headline inflation logged in May 2024.

Meanwhile, the lower end would be the quickest print in 19 months or since the 3.3% clip in August 2024.

A BusinessWorld poll of 18 analysts yielded a median estimate of 3.8% for the March consumer price index in March, faster than the 2.4% in February and 1.8% a year ago.

The Philippine Statistics Authority is scheduled to release March inflation data on Tuesday (April 7).

“BSP’s guidance that inflation stayed above target kept short-term yields firm as rate cuts remain delayed,” Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said.

“Oil prices, Middle East risks, peso weakness, and government borrowing also drove markets.”

Mr. Ulpo and Mr. Ravelas added that US Federal Reserve Chair Jerome H. Powell’s wait-and-see stance on the impact of the Iran war on inflation in the world’s largest economy also affected the market.

“The emphasis on monitoring inflation risks, particularly those stemming from the Middle East conflict kept global yields elevated,” Mr. Ulpo said.

For this week, they said the market will continue to monitor developments in the conflict.

“The yield curve is likely to remain sensitive to external developments, particularly geopolitical news flow and movements in global oil prices. These factors will continue to influence inflation expectations and, in turn, global yield direction,” Mr. Ulpo said.

He said the upcoming maturity of five-year bonds on April 8, which will free up P240 billion in liquidity, “could provide technical support to the market as reinvestment flows come into play.”

“We see a mildly flatter curve — front-end rates sticky, longer tenors supported — with investors focused on inflation data, the peso, and any shift in Fed or BSP messaging,” Mr. Ravelas added. — Isa Jane D. Acabal with Reuters