Philippine government securities ended the week mixed on Friday. Yields fell by an average of 5.8 basis points week on week across the curve, but the moves split by tenor: 91 day, 182 day and 364 day Treasury bill yields climbed 11.1, 8.89 and 9.79 basis points to 5.9247 percent, 6.3889 percent and 6.6706 percent, while two, three, four, five and seven year bond yields fell between 6.52 and 22.04 basis points, the seven year to 7.9128 percent. The 10 year bond fell 22.11 basis points to 7.9126 percent, and the 20 and 25 year tenors edged up less than a basis point to 7.8707 percent and 7.8698 percent. Trading volume rose to 43.83 billion pesos from 14.17 billion the previous week.
The front end is pricing the inflation print. Headline inflation accelerated to 7.8 percent in October, above the 7.6 percent consensus and a 3.5 year high, the eighth straight month above the Bangko Sentral ng Pilipinas target band of 2 to 4 percent, with the year to date average at 5.6 percent. Michael Ricafort of Rizal Commercial Banking Corp. said the print could support further BSP rate hikes in the coming months to bring inflation and expectations back down. A bond trader quoted by BusinessWorld said the market nonetheless appears to be looking beyond the latest reading, with selected yields falling 20 to 28 basis points on Thursday, though the increase in core inflation remains a concern.
Supply is the week’s other test. The Bureau of the Treasury auctions a combined 55 billion pesos of short term securities on Monday: 10 billion pesos of 35 day cash management bills, 20 billion of 91 day bills, 15 billion of 182 day bills and 10 billion of 364 day bills. On Tuesday it offers 30 billion pesos of reissued 20 year bonds with three years and six months of remaining life and an 8.75 percent coupon, which a trader said could fetch 7.7 to 7.75 percent. The Treasury targets 283 billion pesos of domestic borrowing in November, 168 billion via bills and 115 billion via bonds. Last week it raised 52.8 billion pesos against a 55 billion plan, and the 364 day bill was cut back to 7.8 billion pesos at an average rate of 6.756 percent, up 17.6 basis points on the week.
Monday also brings the arbitrating data point. The Philippine Statistics Authority releases third quarter GDP on November 9, and a BusinessWorld poll of 16 economists and analysts put median growth at 2.7 percent, slower than the 3.9 percent of a year earlier but a pickup from the revised 2.4 percent of the second quarter, which would leave nine month growth at 2.6 percent against a government target of 3.5 to 4.5 percent. A soft print would feed the stagflation argument Ricafort raised, that slow growth could temper the need for further tightening, while a firm print leaves the BSP’s inflation problem in charge of the front end.