Yields flat on dovish Fed
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by Land Asia Listings
- February 8, 2017
- News
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YIELDS on government securities (GS) ended almost flat last week on “dovish” Federal Reserve statements on its planned interest rate hikes this year and expectations of upbeat non-farm payrolls data.
Bond yields, which move opposite to prices, increased by an average of 2.86 basis points (bps) week on week, according to data from the Philippine Dealing & Exchange Corp. as of Feb. 3 showed.“GS yields generally moved sideways this week amid mixed US economic reports, dovish statements from the Federal Reserve and heightened concerns about the protectionist stance of President [Donald J.] Trump,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank).
“While yields moved up and down throughout the week, they showed an upward bias likely because investors are still generally expecting more US interest rate hikes this year amid bets of more fiscal stimulus under the Trump administration,” Mr. Dumalagan said.
After its Jan. 31-Feb. 1 review, the US Federal Reserve — through its policy-making body, the Federal Open Market Committee (FOMC) — kept its interest rates steady amid a “relatively upbeat” economy, Reuters reported.
However, the Fed gave no firm signal on the timing of its next interest rate hikes.
The Fed, in December last year, hiked its rates by a quarter of a basis point to range 0.50%-0.75% and forecast three rate increases this year.
“On Friday (Feb. 3), yields increased some more, supported perhaps by expectations of upbeat US nonfarm payrolls data,” Mr. Dumalagan said, adding that “profit taking might have also contributed to the overall increase in yields.”
According to a separate Reuters report late Friday, US non-farm payrolls increased by 227,000 jobs in January, its largest gain in four months.
At the secondary market on Friday, the yield on 10-year Treasury bond (T-bond) gained 43.91 bps on a weekly basis, fetching 4.7714%. It was followed by the 364-day, 20-year, and 182-day debt papers, whose rates rose 19.43 bps, 14.89 bps, and 12.64 bps, respectively, to 2.6343%, 5.4214%, and 2.5375%.
Yields on the four- and two-year T-bonds increased 0.96 bp and 0.79 bp, respectively, to 3.6148% and 3.7161%.
On the other hand, the rate of the seven-year T-bond fell 51.59 bps, finishing with 4.1205%.
Other tenors that saw declines were the five-year, 91-day, and three-year papers, which shed 9.92 bps, 1.47 bps, and 1.03 bps, respectively, to yield 3.8664%, 2.0192%, and 3.4215%.
“[For this] week, yields might rise again, as bets of robust US labor reports might again divert investors’ attention back to the looming interest rate adjustments of the Federal Reserve this year,” said Landbank’s Mr. Dumalagan.
Mr. Dumalagan said the increase in yields might be tempered by “safe-haven buying” on the back of “potentially weak” trade reports from China and US. He also added that continued concerns on policy uncertainty in the US might also limit the rise in yields.
Aside from the US non-farm payrolls data, traders this week are waiting on latest local inflation data, a bond trader interviewed via phone said.
The Philippine Statistics Authority is scheduled to report January inflation data on Feb. 7.
“A projected uptick in domestic inflation and the BSP’s (Bangko Sentral ng Pilipinas) likely decision to keep policy settings steady might not influence yields significantly,” the economist said.
The BSP forecast a 3.3% increase in inflation this year, from last year’s 1.8% actual average. It targets inflation at 2-4% year on year until 2020.
Meanwhile, the central bank’s Monetary Board will also hold its policy review on Feb. 9.
