This should keep the government bond yields low in Q4 2011.
According to DBS, the sharp fall in 3M Phibor to 0.88% from above 4% in July is evidence of the substantial build-up of excess liquidity.
Here's more from DBS:
Without rate hikes from Bangko Sentral ng Pilipinas anytime soon, ample liquidity in the banking system should keep government bond yields in the Philippines low. The government sold PHP 9 billion of 10-year bonds at an average yield of 5.485% yesterday, which is much lower than the 5.896% yield at which 10Y bonds were last auctioned in August.
Ten-year yields are now down 200bps from the Jan 21 high of 7.79% and likely to stay low in 4Q11 as excess liquidity in the banking system remains high. The sharp fall in 3M Phibor to 0.88% from above 4% in July is evidence of the substantial build-up of excess liquidity, which will take time to unwind. Liquidity conditions should normalize gradually in 4Q11 and that should mean some upward pressure for bond yields.
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