YIELDS on government securities (GS) mostly went down last week after the United States slashed its planned “reciprocal” tariff rate on Philippine exports to 19% from the threatened 20%.
GS yields, which move opposite to prices, declined by an average of 1.46 basis points (bps) week on week, based on the PHP Bloomberg Valuation Service Reference Rates as of July 25, published on the Philippine Dealing System’s website.
At the short end of the curve, the 91-day T-bill dropped by 4.02 bps to 5.4104%, while the 182- and 364-day T-bills climbed by 1.07 bps and 2.22 bps to 5.5817% and 5.68%, respectively.
At the belly of the curve, yields on the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) declined by 5.26 bps (to 5.6951%), 4.67 bps (5.8027%), 4.09 bps (5.8903%), 3.45 bps (5.9685%), and 2.51 bps (6.0992%), respectively.
Meanwhile, at the long end, the 10-year bond’s yield fell by 2.91 bps week on week to 6.2432%, while the 20- and 25-year papers saw their rates rise by 3.48 bps (6.5690%) and 4.04 bps (6.5546%), respectively.
GS volume traded on Friday reached P64.31 billion, thrice as much as the P21.21 billion logged on July 18.
A bond trader said GS yields were broadly lower as participants welcomed the trade deal between the Philippines and the US.
“This has eased some inflationary concerns emanating from the broad tariff pronouncements from the Trump administration,” the bond trader said in an e-mail.
“However, President Ferdinand R. Marcos, Jr. reportedly clarified that the Philippines only agreed to impose zero tariffs on imported US automobiles and not on the entire US market, with details to be finalized after the trade talks,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in an e-mail.
Last week, US President Donald J. Trump announced a 19% tariff on Philippine goods following a meeting with Mr. Marcos at the White House during the latter’s three-day state visit to Washington. As part of the deal, the Philippines will also open its market to US goods.
The 19% tariff rate is slightly lower than the threatened 20% but is higher than the 17% “reciprocal” tariff announced by Mr. Trump in April. The new tariff will be implemented starting Aug. 1.
The Philippines’ new US tariff rate is now the same as Indonesia’s, and slightly lower than Vietnam’s 20%. Singapore faces the lowest US tariff rate of 10%.
Mr. Ricafort added that yields mostly went down with some P800 billion in government debt set to mature in the next two months.
For this week, GS yields may be range-bound before the US Federal Reserve’s policy meeting on July 29-30, the trader said.
The Fed is expected to convene this week for a two-day monetary policy meeting, which is expected to culminate in a decision to let its federal funds target rate stand in the 4.25% to 4.50% range, Reuters reported.
The meeting comes at a moment in which Fed Chair Jerome H. Powell is facing criticism from Mr. Trump for not cutting rates.
“Yields may continue trading sideways as market participants could remain cautious ahead of the Federal Reserve meeting,” the bond trader said. “Broadly, the US central bank is widely expected to hold policy rates unchanged despite persistent pressure from US President Trump. Nevertheless, policy signals from Fed Chair Powell can provide further clarity whether the anticipated first US rate cut for the year will likely be delivered in September.”
However, rates may tick higher on inflation concerns following last week’s tropical storms and monsoon rains, the trader added.
For his part, Mr. Ricafort said: “Market sentiment is also being supported by dovish signals from Finance Secretary Ralph G. Recto and BSP (Bangko Sentral ng Pilipinas) Governor Eli M. Remolona, Jr. on possible further local policy rate cuts totaling 50 bps for the rest of the year, with the earliest 25-bp cut potentially taking place at the next BSP policy meeting on Aug. 28.”
The Monetary Board in June reduced borrowing costs by 25 bps for a second straight time this year, bringing its policy rate to 5.25%.
Since starting its easing cycle in August last year, the central bank lowered interest rates by a cumulative 125 bps. — Leigh Patrick Q. Batoon
