Yields on gov’t debt rise on profit taking

YIELDS on government securities (GS) ended mostly higher last week as market players repositioned before the month’s end amid domestic political concerns and with expectations of another rate cut from the Bangko Sentral ng Pilipinas (BSP) this month already priced in.

GS yields, which move opposite to prices, rose by an average of 1.73 basis points (bps) week on week, according to PHP Bloomberg Valuation Service Reference Rates data as of Nov. 28 published on the Philippine Dealing System’s website.

The short end of the curve was mixed, with the 91-day Treasury bill (T-bill) going up by 1.44 bps to 4.8820%, and the 182- and 364-day T-bills slipping by 0.33 bp (to 4.9999%) and 1.41 bps (5.0711%), respectively.

At the belly, yields climbed across the board. Rates of the two-, three-, four-, five, and seven-year Treasury bonds (T-bonds) climbed by 3.68 bps (to 5.2096%), 3.63 bps (5.3310%), 3.32 bps (5.4501%), 2.69 bps (5.5588%), and 1.12 bps (5.7291%), respectively.

Tenors at the long end likewise ended higher. Yields on the 10-, 20-, and 25-year T-bonds rose by 4.08 bps, 0.76 bp, and 0.05 bp to 5.9364%, 6.3836%, and 6.3794%, respectively.

Total GS volume traded went up to P91.27 billion last week from P62.52 billion recorded previously.

“Profit-taking was the theme this week as investors de-risk ahead of the Nov. 30 rally, which comes after confirmation by some parties that there as sides who are plotting a transition government,” a trader said in a text message.

The trader said expectations of further rate cuts from both the BSP and the US Federal Reserve are already mostly priced in.

Noel S. Reyes, Security Bank Corp. Trust Asset Management Group chief investment officer,  likewise said in a phone interview that market activity was mostly muted throughout the week, with players mostly reducing their risk positions amid domestic political concerns as the flood-control mess continues to unravel.

“There’s been a gradual steepening of the curve. The 10-year bond’s yield went up slightly, but overall, it’s still pretty much within the range that we’ve been seeing,” he added.

He said US Treasury yield movements also partly affected the GS market. “But since it was also in a range for the past week, it’s not as relevant as an influence in terms of peso government securities yield movements.”

The market is already looking ahead to the Monetary Board’s Dec. 11 meeting, Mr. Reyes added.

“Inflation is manageable for us and the GDP (gross domestic product) was very soft for the third quarter, which now means the BSP will likely need to act more than what is necessary,” he said.

“I think originally, they were still contemplating on whether 25 bps was certain for December. I think because of recent events, that has become a larger possibility.”

BSP Governor Eli M. Remolona, Jr. earlier said they could deliver a fifth straight 25-bp cut at this month’s policy review to help provide economic support following the weak growth seen last quarter as a corruption scandal involving government infrastructure projects has dampened consumer and investor confidence.

The central bank has lowered borrowing costs by a total of 175 bps since it began its easing cycle in August 2024, with the policy rate now at an over three-year low of 4.75%.

Philippine GDP grew by 4% in the third quarter, the slowest in over four years. This brought the nine-month average to 5%, below the government’s 5.5-6.5% GDP growth target for the year.

Thousands of protesters in the Philippines, including Roman Catholic clergy and civil society groups, on Sunday gathered in the capital for another rally triggered by a government corruption scandal, Bloomberg reported.

Manila police estimated about 3,000 demonstrators assembled at a major public park in Manila. Some shouted chants calling for the jailing of corrupt officials, while ranking Church officials in the predominantly Roman Catholic nation separately held Mass at a site where a public uprising erupted nearly four decades ago.

“Let us unite in repentance for corruption in our society,” said Cardinal Pablo Virgilio David, president of the Catholic Bishops’ Conference of the Philippines. “We need a moral and spiritual reset if we want a brighter future for the Philippines.”

For this week, Mr. Reyes said GS yields could be range-bound before the Monetary Board’s policy meeting next week.

“Unless there is a significant risk that occurs on Sunday… if it becomes violent, then there could be some sell-off on that day. It’s really more the event on Sunday and anticipation of BSP action,” he added.

“Fundamentally, we think that yields will eventually move lower to reflect the rate cut,” the bond trader said. — Matthew Miguel L. Castillo