Gov’t bond yields seen to rise slightly in Q3

Rates on government bond issues are unlikely to rise in the remainder of the second quarter as the Philippine monetary system remains “ultra liquid,” according to First Metro Investment Corp. and the University of Asia and the Pacific.

FMIC and UA&P said in the latest issue of their monthly joint research Market Call that the high inflow of revenue during the tax season left little room for yields to rise.

However, they expect interest rates to go up in the third quarter and investors to cash in.

“Profit-taking may ensue in third quarter but we expect a resumption of demand and back to low yields in the fourth quarter ,” they said.

“Overflowing liquidity, strong government cash position and lower inflation rates are combining to keep the attractiveness of the local bond markets,” they added.

FMIC and UA&P believe that ample liquidity will flow into the bond markets after the Bangko Sentral ng Pilipinas dropped the rates on its special deposit account facility by a cumulative 150 basis points so far this year.

Besides that, domestic savings and the inflow of portfolio investments are contributing to the swelling stock of unengaged capital.

Last week, during the latest of the primary auctions at the Bureau of Treasury, the coupon rate on five-year treasury bonds fell by 200 basis points to 2.125 percent. Investors tendered a total of P57.9 billion or almost double the offered volume of P30 billion.

National Treasurer Rosalia V. de Leon said the auction results might or might not be due to the SDA rate cuts, but she said that such an effect would eventually happen.

As for yields on long-term Philippine global bonds, FMIC and UA&P said there was not much space for further easing following the upgrade of the country’s rating to investment grade.

Standard & Poor’s Rating Services’ earlier this month gave the Philippines’ long-term international debt investment grade status. This followed a similar move by Fitch Ratings earlier this year.

In the remainder of the second quarter, FMIC and UA&P expect investors to cash in as yields rise.

Philippine global issues “are likely to succumb to profit-taking up to the end of the second quarter,” they said.