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Profitability on the reduction of public debt on the Fed, the BPP rate has lowered expectations


YIELDS ON Government Securities (GS) traded in the secondary market have fallen cheaper as US Federal Reserve and Bangko Sentral ng Pilipinas (BSP) rates stagnate.

On average, the yield of GS fell by 7.3 basis points ($) per week, according to the Bloomberg (BVAL) benchmark performance benchmark as of June 28, published on the Filipino dealer's website.

"Profitability GS continued to decline, tracking the overall expectations that the Fed could lower policy rates in July. The global yield of bonds, led by the 10-year US Department of the Treasury, has declined, while local bonds are tracking this move, "said Nicolas Antonio T. Map, Senior Economist at ING Bank NV-Manila.

"Expectations for a slowdown in the rate of inflation for June and lower borrowings from the Treasury Bureau (BTr) also contributed to pressure on lower rates," added Mr. Mast.

In a separate e-mail, the bonds trader shares the same opinion: "Local profits have fallen [last] a week due to the growing market sentiment of the centralized central bank at the global level, mainly from the Fed and the BPP.

The trader said that the long-awaited mood among traders remained after the BPP reconsidered its inflation forecast during the June 20 meeting of the Monetary Council. The trader also referred to comments by deputy governor of the BSP, Diva G. Guinigundo, that there is still room for easing monetary policy against the backdrop of expectations that inflation will continue its downtrend despite growth in May.

At the meeting of the Monetary Council, the BPP cut its inflation forecast to 2.7% this year, from 2.9% expected in May and 3% from 3.1% by 2020.

Meanwhile, on Thursday, the BSP Economic Research Department reported that inflation was likely to drop within the range of 2.2-3% last month against the background of lower rice prices and domestic oil prices, as well as lower electricity tariffs and increasing peso.

The higher end of June in the BSP compared with May 3.2%, which interrupted the six consecutive months of slowing from September and the nine-year high in October by 6.7%. Meanwhile, the BSP estimate will be the lowest since November 2016 at 2.1%, while the upper limit will be the slowest since 2.9% in December 2017.

Analysts note that the longer end of the yield curve was moving just last week.

"Profitability has responded to a borrowing program in the second half with BTr, focused on longer-term bonds to issue, taking into account the inflation forecast," Mr MAP said.

"Huge movements at the long-term end of the yield curve were observed during the week, as investors closely followed any signs of possible trade discussions between the United States and China during the G-20 summit [last] weekend ", – said the bond dealers.

The trader added that the external events led to the fact that local profits ended last week.

"Initially low profitability, as geopolitical tensions between the United States and Iran intensified after the introduction of US sanctions. However, at the end of the week, profitability recovered as a result of increased appetite for risk from some positive trade developments ahead of the G-20 summit …, during which the United States and China reach a consensus on their current trade conflicts, "the trader said.

Treasury bills (T-bills) were chaired by the head of 91-day debt instruments, which gave 4.46%, which is 10.7 baht. 182-day and 364-day T-bills dropped by 7.9 pp. P. 6 bp. to 4.76% and 4.97% respectively.

Bonds on the abdomen curve also fall. Two-, three- and four-year Treasury bonds (T-bonds) were quoted at 4.95%, 4.96% and 4.98%, having decreased by 5.6 pp, 5.2 bits and 4.9 bit respectively. Similarly, five-, seven- and ten-year papers yielded 5%, 5.04% and 5.07%, which was 4.6 bps, 5 bps, and 5.3 bits below the week for a week.

The yield on long-term debt obligations also decreased, with 20- and 25-year bonds yielding 5.18% and 5.13%, which was 9.8 bps and 15 bps, respectively, than a week ago.

During this week, the bonds trader said that GS's yield would continue to decline, "as the probable M & A report on Philippine inflation may strengthen views on more BSP reductions this year."

"Probably, the weak US economic reports on production and services may also weigh on yield, fueling reductions from the US Federal Reserve in July 2019."

Mr. MAG ING Bank, "[The] the market is likely to take its opinion from the G-20, especially [Presidents’] Tramp-Si meeting for the direct, as well as directed to local inflation. " – Carina Angelica V. Olano

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