PHL yields climb on inflation, BSP hike bets

YIELDS on government securities (GS) traded in the secondary market rose sharply across all maturities last week as persistent inflation concerns and expectations of another rate increase from the Bangko Sentral ng Pilipinas (BSP) weighed on demand for bonds.

Stronger-than-expected US inflation data reinforced expectations that the US Federal Reserve could keep interest rates elevated for longer, adding upward pressure on local yields, analysts said.

Government debt yields, which move opposite to prices, climbed by an average of 34.18 basis points (bps) week on week, based on PHP Bloomberg Valuation Service Reference Rates as of May 15 posted on the Philippine Dealing System’s website.

Yields rose across the curve, with increases seen in short-, medium- and long-term Treasury securities.

Trading volume for government securities slipped to P15.87 billion on Friday from P17.56 billion a week earlier.

A bond trader said investors continued to demand higher yields as inflation risks intensified following higher oil prices linked to the US-Iran war.

“The strong demand for government securities is being driven by domestic inflationary concerns and market expectations of a potential BSP rate hike,” the trader said in an e-mailed reply to questions.

The trader added that stronger US inflation also reinforced expectations that the Federal Reserve would keep rates unchanged for an extended period.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said rising fuel prices continued to feed into broader inflation pressures.

“The increase is largely due to the effects of the sharply higher oil, fuel and petroleum prices on the prices of other goods and services or second-round inflation effects,” he said in a Viber message.

Mr. Ricafort added that rising global oil prices and higher US Treasury yields also contributed to the increase in local bond yields.

“Investors are waiting for the peak in bond yields before taking positions to lock in higher returns,” he said.

Headline inflation accelerated to 7.2% in April from 4.1% in March, the fastest in more than three years and exceeding the BSP’s 2%-4% target.

In April, the BSP raised benchmark interest rates by 25 bps to 4.5%, its first rate hike in more than two years.

Meanwhile, US consumer inflation rose in April for a second straight month, according to Reuters, reinforcing expectations that the Federal Reserve might keep borrowing costs elevated. — Abigail Marie P. Yraola