Yields on government debt climb on the bets of BSP hike

EXPECTATIONS of the United States of America (GS), last edited by the Bangko Sentral ng Pilipinas (BSP)

] GS yields went up 12.96 basis points (bp) on average last week, data from the Philippine Dealing & Exchange Corp. as of July 27 showed.

"The increase in GS yields [last] can be traced to three factors: the US estimates for the second-quarter GDP (gross domestic product) Growth, and positive developments regarding the trade talks between the US and the European Union (EU), "said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (LANDBANK).

Ruben Carlo O. Asuncion, chief economist at the UnionBank of the Philippines,

"There seems to be some consistency in the short-term.

He added that the "clarity" on the state of the cuts in the reserve requirement ratio (RRR) "[A] BSP Governor Nestor A. Espenilla, Jr. said the Monetary" may have also played a role in this contractionary or hawkish stance by the BSP. Board is considering a "strong follow-through" policy action for its upcoming Aug. 9 policy rate meeting to quell inflation expectations. This is a follow-up to the rate of inflation in the first half of the year.

Inflation averaged 4.3% in the first semester and peaked at 5.2% in June, However, some economists have flagged confusing signals by the BSP when it lowered the RRR to 18% from 20% through two one-point reductions in March and June, saying that this is a counterbalance to the back-to-back

The BSP chief of bank economists and other market watchers This year, it should be enough for now, adding that the goal of achieving single digit RRR could be resumed next year when inflation "returns to target" based on your forecasts.

Meanwhile, on the external front, a survey conducted by Bloomberg among economists showed an expected average of 4.2% economic growth in the US on the back of narrowing trade deficit and robust consumer spending.

More, threats of an all-out trade war between the US and the US showed signs of cooling off after US President Donald J Trump and European Commission chief Jean-Claude Juncker agreed "to work together towards zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods."

To recall, retaliatory tariffs have been imposed on US goods by China, the EU, Canada, and Mexico.

Treasury bills (T-bill) strike by 2.21 bps (3.2773% ) and 12.49 bps (4.8237%), respectively. On the other hand, the 182-day T-bill dropped 10.77 bps to fetch 4.2506%.

All tenors in the belly of the curve saw their yields go up. The five-year Treasury bonds (T-bond) led the way with a 44.03bp increase to yield 6.1339% followed by the four-year T-bonds which rose by 25.71 bps to 5.9357%. The two-, three- and seven-year debt securities likewise increased by 16.55 bps (5.0427%), 9.30 bps (5.1127%) and 0.06 bp (6.3%).

In the long-end, the 10-year paper climbed 25.50 bps to fetch 6.65%. The 20-year T-bond also rose slightly by 4.47 bps to yield 7.4518%.

Looking forward, UnionBank's Mr. Asuncion expects yield movements to be sideways "with upward bias" due to the "expected hawkish decision" of the upcoming central bank meeting.

LANDBANK's Mr. Dumalagan Likewise shared the same outlook as the US Federal Reserve may yet again drop hawkish hints during its policy meeting on Aug. 2. Other factors that may push GS yields higher, he said, include possible tweaks to the Bank of Japan's stimulus program, expectations of domestic inflation in July, and a bsp rate hike next month. – Vann Marlo M. Villegas