Debt yields mixed after BSP move

YIELDS on government securities (GS) traded in the secondary market were mixed last week as the Bangko Sentral ng Pilipinas (BSP) delivered a sixth straight cut and as the Treasury offered new 10-year bonds.

GS yields, which move opposite to prices, went down by 2.72 basis points (bps) on average week on week, based on PHP Bloomberg Valuation Service Reference Rates data as of Feb. 20 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 11.79 bps, 9.17 bps and 8.35 bps week on week to 4.4319%, 4.5437% and 4.5946%, respectively.

Meanwhile, at the belly, rates were mixed. Yields on the three-, four-, and five-year Treasury bonds (T-bonds) edged up by 0.23 bp (to 5.3463%), 0.94 bp (5.485%), and 1.07 bps (5.5985%), respectively, while those for the two- and seven-year bonds went down by 2.33 bps (to 5.161%), and 0.15 bp (5.7732%).

Yields were also mixed at the long end. The rate of the 10-year tenor inched up by 0.03 bp (to 5.9679%), while yields on the 20- and 25-year bonds slipped by 0.33 bp (to 6.5791%) and 0.12 bp (6.5821%), respectively.

GS volume traded reached P44.06 billion, lower than the P60.76 billion recorded a week earlier.

Yields on shorter tenors continued to decline as the BSP slashed borrowing costs again last week, with the market pricing in previous and possible future cuts, a bond trader said in an e-mail.

The BSP on Thursday lowered benchmark interest rates by 25 bps for a sixth straight meeting to bring the policy rate to 4.25%, as expected by all 16 analysts in a BusinessWorld poll.

This brought total reductions since August 2024 to 225 bps.

BSP Governor Eli M. Remolona, Jr. said future easing will largely depend on how soon confidence will recover, as weak sentiment has affected demand, making the output gap bigger.

“We’re now in a situation where it’s more conditional on what happens to confidence and growth,” he said at a briefing after Thursday’s meeting. “We support growth, and we do want growth. But at the same time, our main mandate is still inflation. So, to the extent we can support growth without causing inflation, we will support growth.”

On Friday, he said that with inflation under control, they have room to help stimulate domestic demand, although they face a “large element of uncertainty.”

“We are at the point where monetary policy cannot do much more, but things are very uncertain,” the BSP chief said.

Analysts are split on prospects for the central bank’s policy path, with some expecting the BSP to pause for now and others seeing further easing ahead.

“The massive demand for the latest 10-year offering reflected market participants’ high preference to secure attractive interest rates near 6%,” the bond trader added.

The Bureau of the Treasury  said on Friday that it raised a total of P297.94 billion from its offering of new 10-year fixed-rate Treasury notes, made up of P235 billion in new money and P62.94 billion via the switch program.

This was well above the initial P30-billion offer. The benchmark bonds fetched at a coupon rate of 5.925%.

The trader said soft US data released early last week raised concerns over the state of the world’s largest economy, also pulling yields down.

For this week, US reports on gross domestic product and inflation released late on Friday could affect local yield movements as these could give market players clues on the Federal Reserve’s future policy actions, the trader added.

Meanwhile, Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said in a Viber message that rates could move sideways or higher “with upside risks to inflation and the need for clearer signs of confidence in the economy.” — P.O.A. Montalvo