PESO FIXED INCOME
MARKET REVIEW: The unexpected investment rating upgrade for the country by the S&P, accompanied by weak data on Money Supply and Bank Lending, strengthened bond buying in the secondary market. The March money supply grew by 4.2%, the slowest in 11 years, while Bank Lending has declined to a single digit growth rate of 9.9%, the lowest since 2010. The anemic growth in lending and money in circulation raised expectations that the Central Bank will cut the Reserve Requirement Ratio (RRR) sooner than later.
Benchmark rates declined for the second week led by medium to long term maturing bonds: 10-yr down by 15 bps to 5.81% while the 2-yr declined by 5 bps to 5.91%, keeping the 10-yr vs 2-yr spread negative.
MARKET OUTLOOK: The positive opening move in May will be reinforced by key events leading to the BSP policy setting on May 9. A 7-year bond auction, economic data report on April Inflation, Trade Data and the 1st Quarter GDP are scheduled in the week. The market sentiment on BSP rate action remains diffused but the latest Bloomberg survey favor a 25-bps cut to 4.50%. Still, a Hold or No Action from the BSP is not likely to derail the downward trend in rates.
DOLLAR FIXED INCOME
MARKET REVIEW: Market Review: US Treasury yields traded higher with 2-, 5- , 10- and 30-yr yields closing higher by an average of 3bps. US Treasury yields rose on the back of better than expected personal spending data which came in +.90% M/m vs +.70% consensus. This was despite the weaker than expected Core PCE inflation data printing at 1.6% Y/y vs 1.7% consensus.
On the ROP space, strong buying interest was seen after the S&P upgraded the Philippines from BBB to BBB+. The 2-, 5, 10- and 25-year yields declined by an average of 9bps week-on-week.
MARKET OUTLOOK: While some volatility was observed after the FOMC meeting, US Treasury yields generally held firm with the 10-year hovering at 2.50% and the 30-year at 2.90%. These levels are expected to hold over the next week, unless there are surprises on the non-farm payrolls [consensus at 190,000], unemployment [consensus at 3.8%], and inflation [consensus at 1.9%] data scheduled for release over the next week. Market reaction was muted following the strong 1Q19 GDP print, so it appears that the bar is set quite high for investors to move yields in a big way in any direction. Overall, the bias for lower rates continues, with only a break above 2.60% for the 10-year and 3.10% for the 30-year to suggest otherwise.