Debt yields slip on policy easing bets

YIELDS on government securities (GS) traded in the secondary market were mixed last week as players preferred to stay on the sidelines before the Bangko Sentral ng Pilipinas’ (BSP) first policy meeting for the year, weighing shifting rate expectations.

GS yields, which move opposite to prices, inched down by 0.68 basis point (bp) on average week on week, based on PHP Bloomberg Valuation Service Reference Rates data as of Feb. 13 published on the Philippine Dealing System’s website.

At the short end of the curve, yields on the 91-, 182-, and 364-day Treasury bills (T-bills) fell by 2.07 bps, 4.73 bps and 5.93 bps week on week to 4.5498%, 4.6354% and 4.6781%, respectively.

At the belly, rates were mixed. Yields on the two- and three- year Treasury bonds (T-bonds) went up by 2.3 bps (to 5.1843%) and 0.21 bp (5.344%), respectively, while those for the four-, five-, and seven-year bonds went down by 1.14 bps (to 5.4756%), 2.51 bps (5.5878%), and 2.85 bps (5.7747%), respectively.

On the other hand, at the long end, yields rose across all tenors. The rates of the 10-, 20-, and 25-year debt increased by 0.78 bp (to 5.9676%), 4.14 bps (6.5824%), and 4.3 bps (6.5833%), respectively.

GS volume traded reached P60.76 billion, higher than the P46.61 billion recorded a week earlier.

“Yields moved fairly unchanged from [the previous] week amid market uncertainty over the possible BSP decision next week,” a bond trader said in an e-mail.

The trader said players reacted to BSP Governor Eli M. Remolona, Jr.’s latest policy hints. Last week, the BSP chief said that a rate cut is possible at the Monetary Board’s Feb. 19 meeting amid stalling economic growth, but reiterated that price stability remains their primary mandate and their easing cycle is nearing its end.

The BSP is widely expected to lower benchmark interest rates at its policy meeting on Thursday to support domestic demand and prop up the economy as inflation remains benign.

All 16 analysts in a BusinessWorld poll expect the Monetary Board to deliver a sixth straight 25-bp cut this week, which would bring the policy rate to 4.25%.

The central bank has lowered interest rates by a total of 200 bps since August 2024.

Key US economic data releases last week on employment and inflation also affected GS yield movements, the trader added.

“The latest data print in the US solidified views that the Federal Reserve cuts might be delayed further as the US labor situation appeared to have stabilized from last year’s dismal picture and inflation still remains above the US central bank’s 2% target.”

Meanwhile, Alessandra P. Araullo, chief investment officer at ATRAM Trust Corp., said last week’s yield movements were primarily driven by the strong demand for the Bureau of the Treasury’s (BTr) T-bond auction last week.

“The seven-year FXTN 10-71 auction surprised on the upside, drawing over P80 billion in tenders, translating to a solid 2.6x bid-to-cover. Awards were printed within the 5.8% to 5.875% range, averaging 5.859%, reflecting healthy appetite despite the recent backup in yields,” she said in a Viber message.

“In the secondary market, we saw some afternoon selling pressure in the five- to 10-year sector as dealers lightened positions to create room for [this] week’s jumbo 10-year supply. However, this was met by opportunistic buying into the close, allowing yields to finish broadly unchanged. Overall, demand remains constructive, but positioning is turning more tactical ahead of heavy supply.”

The BTr will hold the rate-setting auction for its new 10-year benchmark bonds on Wednesday. It plans to raise at least P30 billion from the offering, which also has a bond exchange component.

For this week, the market will monitor the 10-year bond auction, Ms. Araullo said, with rates expected to be within 5.9% to 6%.

“At the same time, the Bangko Sentral ng Pilipinas is scheduled to hold its first policy meeting of the year, with consensus leaning toward a 25-bp rate cut. Beyond the cut itself, market focus will be on forward guidance specifically whether the BSP signals further easing ahead or hints at a pause to reassess inflation and currency dynamics,” she added.

“Market participants are likely to remain on the sidelines due to caution ahead of the BSP policy decision, which is still mum in its possible decision whether to hold or reduce interest rates further,” the bond trader said.

The trader added that the market will wait for the release of minutes of the US Federal Reserve’s latest meeting for potential hints on their policy path.

“External drivers remain a key swing factor. Upcoming US labor and inflation data could influence global rates and spill over into local bond movements, especially in the belly and long end of the curve. Positioning is likely to stay cautious, with players balancing domestic easing expectations against global yield volatility,” Ms. Araullo said. — Abigail Marie P. Yraola