US Treasury yields declined further as markets continued to rally post-FOMC. The inversion between the 3-month and 10-Yr UST yield corrected but the yield remains downward sloping from the short end to the 5-Yr tenor. Meanwhile, investors showed optimism for another round of US-China trade talks despite misses in US economic data. At the week’s close, the 2-, 5- , 10- and 30-yr USTs yields went down by an average of 4bps week-on-week. Tracking the movements of USTs, ROP yields for 2-, 5-, 10- and 25-yr ROPs closed the week lower by an average of 10bps week-on-week.
The BTr successfully sold PHP20 billion of its re-issued 7-year paper at an average rate of 5.934%. Active trading in the local bond market was sustained with the longer-dated securities rallying 10-15bps given the market’s optimistic inflation forecast for March. An inflation figure within the 2-4% range might give BSP some room to cut the RR soon. The BTR has also announced its 2Q borrowing schedule where they intend to sell PHP315 billion worth of T-bills and bonds with a tenor of 7-, 10- and 20-year.
WHAT WE EXPECT
US Treasuries continue to trade on unchartered territory, last time we saw the 10-Yr break lower than 2.40% was end 2017. We expect some retracement, until new trading ranges have been established. ROPs are also trading at the tightest since the start of 2018. While we don’t expect a major correction in spreads, we see ROPs to trade sideways following UST movement in the short term.
We expect peso yields to trade lower as the market position themselves ahead of the release of a lower March inflation figure.