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Bond Investing: Strike at the belly of the curve
Since the start of the most recent rally, yields of long-dated bonds have fallen faster than yields in the front-end. Where do investors deploy funds in a flat curve like this?
By Metrobank Rates and Credits Department, EA Aguirre, Joshua Tatlonghari, and Yna Virtudazo
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Over the past few weeks, the government securities (GS) curve has significantly bull flattened on renewed appetite for duration, or the willingness to take on more interest rate risk by purchasing longer-term bonds. Bull flattening occurs when long-term rates fall faster than short-term rates, causing the yield curve to flatten.
Investors were keen to maximize the potential move lower in yields amid possible rate cuts from the Bangko Sentral ng Pilipinas (BSP). This trend is also supported by the rally in global yields after weak data prints from the United States, which can be seen as markets are already pricing in more than four rate cuts for the year. This has translated to aggressive risk-taking in the secondary market that eventually spilled over to the Bureau of the Treasury’s (BTr)
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