PESO FIXED INCOME
MARKET REVIEW: Local bond yields dropped, shadowing US Treasuries’ movement despite higher than expected May CPI data. The release of PHP106Bn in the system and BSP Governor’s assurance that cuts are inevitable contributed further to the rally resulting in a 30bp decline across the curve. The 10-yr BVAL benchmark rate ended the week significantly lower by 33bps to 5.22%, and the 2-year benchmark rate also declined by 26bps to 5.27%.
MARKET OUTLOOK: Yields have declined for 3 consecutive weeks, bringing long bond yields at its lowest since the first quarter of 2018. The 20-year auction will receive healthy demand as investors seek to lengthen duration underpinned by lower for longer rates.
DOLLAR FIXED INCOME
MARKET REVIEW: US Treasury (UST) yields displayed volatility during the week. USTs started with a sharp rally as markets reacted to Fed member Bullard’s dovish statement that a rate cut may be warranted to boost inflation and provide some insurance against global risks including uncertainties on the US-China trade war. Meanwhile, Fed Chair Powell’s assurance to closely monitor the implications of the trade dispute for the US economic outlook and commitment to act as appropriate to sustain the economic expansion, improved risk sentiment, prompting a rally in equities and slight sell off in USTs. The UST yield curve steepened at the week’s close as the 2-, 5- and 10- tenors slightly declined by 4bps, 2bps and 1bp W/w while the 30-yr tenor increased 5 bps W/w. In the ROP space, heavy buying interest was seen in the liquid benchmarks as ROP yields continued to track movements of UST yields. The 2-, 5-, 10- and 25-yr ROP yields significantly fell 15bps, 14bps, 13bps and 13bps W/w, respectively.
MARKET OUTLOOK: This coming week, eyes will be on China’s trade and inflation data releases, US CPI report and 3-, 10-, and 30-yr bond auctions. Any developments from the G20 Finance Ministers and Central Bank Governors Meeting on 8-9 June will also be closely monitored. Risk sentiment should test whether the 2.06-2.20% 10-Yr UST range will hold in the short term. ROPs will continue to track UST moves.