The Bureau of Treasury (BTr) successfully auctioned off its new 20-year bond with an oversubscription of 2.55 times. BTr awarded PHP20 billion of the 20Y FXTN at a coupon rate of 6.75% causing the yields to decline as strong buying momentum persist. Philippine GDP printed 6.2% in 2018, below market expectations of 6.3%. Market players took this opportunity to buy during the slight sell-off bringing yields back lower than last week’s levels.
US Treasury yields slightly declined supported by a decent demand for the 2- and 5-yr UST auctions and significant trade activity. The rally in rates was further pushed by FOMC’s dovish statement on its January 31 meeting, which indicated the Fed’s patience in adjusting policy rates while continuing its path to normalize its balance sheet.
WHAT WE EXPECT
Expect yields to decline as December inflation figure, forecasted between 4.3% and 5%, is set for release next week. The BSP expects inflation to average 3.2% this year, back to their 2% to 4% target range. Considering this risk event, the market anticipates BSP to keep rates steady on its next Monetary Board meeting on February 7.
Given the shortened trading week, we expect USD bonds to trade sideways on minimal liquidity. With the drop in US Treasury yields, a new trading range should be set despite a week of low data releases in the US.