The start of the week was characterized as lackluster for peso fixed income trading, as the market remained defensive in anticipation of BTr’s RTB sale this quarter. Trading volume only started to pick up following the FXTN maturity worth PHP71 billion and BTr’s announcement of its sale of 5-year RTB worth PHP30 billion on February 26.
At the week’s close, the 2-, 5-, 10- and 30-yr UST yields increased by an average of 2bps week-on-week. Market players shifted to risk-on tone after FOMC minutes suggested that Fed will end its balance sheet run-off later this year. In addition, US and China appear to be closer to reaching trade agreement supported by understanding on key structural issues. Due to positive sentiment, ROP yields of 2-, 5-yr, 10-yr and 25-yr declined by an average of 1bp.
WHAT WE EXPECT
Given ample liquidity in the market, we expect peso yields to trade lower as investors continue to look for possible investment outlets aside from the RTB.
As the deadline for US-China trade talks draws near, UST yield movement will be driven by risk sentiment. Any positive development should signal risk on, which could send UST yields higher. However, it is a busy week for US economic data releases, which include January Durable Goods Order, 4Q18 Real GDP, and ISM Manufacturing index. UST yields may decline if data trend supports prospects of slower growth in the US. Meanwhile, ROP yield spreads over USTs continue to trade tight. ROP yields will follow UST trend if US data divergence from expectations widens.