PESO FIXED INCOME
MARKET REVIEW: The BSP cut its policy rate by 25 bps to 4.50% on the back of easing inflation and slowing economic growth. The Philippine GDP printed at only by 5.6%, lower than market consensus of 6.0% and lower than previous quarter’s 6.3%.
Local bond yields declined by as much as 10bps as buying momentum in the local bond market ensued post-GDP data release. The 10-yr BVAL benchmark rate declined 5bps to 5.75%, while the 2-year benchmark rate decreased 10bps to 5.79%, week-on-week.
MARKET OUTLOOK: Expect yields to continue its downward bias after the rate cut. Some traders may opt to lighten their positions amid lower yields. Market players will wait for the decision on RRR and results of 7-yr bond auction that is scheduled next week.
DOLLAR FIXED INCOME
MARKET REVIEW: Risk-off sentiment drove US Treasury yields lower during the week on the back of renewed US-China trade tensions. What started out as tweets accusing Beijing of failing to honor the commitments it made during earlier negotiations eventually resulted in the US raising the tariff rate on roughly USD200 billion worth of imports from China from 10% to 25%.. At the week’s close, the 2-, 5- , 10- and 30-yr yields dropped by an average of 7bps, week on week. Meanwhile, Sovereign bonds or ROPs benefitted from the risk-off tone and the decline in US Treasury yields. The 2-, 5, 10- and 25-year ROP yields declined by an average of 2bps, week on week.
MARKET OUTLOOK: The market will anticipate how China responds to the newly-imposed tariffs. Risk sentiment will continue to drive US Treasury yields. Next week, the economic calendar is also marked with a number of US data releases led by activity in retail sales and manufacturing. We continue to expect ROP yields to track US Treasury movement in a holiday-shortened week.