PESO FIXED INCOME
MARKET REVIEW: The Bureau of Treasury (BTr) announced the reduction in borrowing in the 3rd quarter and the cancellation of the 7-yr auction scheduled on June 18. Less bond supply strengthened the downward move in yields across the curve. Buying momentum tapered as sellers emerged to take profit. The 10-yr BVAL benchmark rate closed the week slightly higher by 3bps to 5.25%, while the 2-year benchmark rate declined by 17bps to 5.10%, week-on-week.
MARKET OUTLOOK: The BSP is scheduled to decide whether to maintain or cut policy rates onJune 20. Bloomberg consensus pencils a 25-bps overnight rate cut to 4.5%. Current levels have already priced in the adjustment but rates still have room for further decline. Market will focus on the BSP’s forward guidance.
DOLLAR FIXED INCOME
MARKET REVIEW: Risk-on sentiment drove US Treasury rates higher early in the week. This is due to US-Mexico trade optimism and immigration deal. The trend reversed mid-week given softer US CPI (2.0% actual vs 2.1% estimates) and growing market expectations of a 50bp Fed policy rate cut this year. At the end of the week, UST yields slightly decreased as the 2-, and 5-Yr moved 1bp and 2bps to 1.84% and 1.83%, respectively. In the ROP space, heavy buying interest was seen ahead of the ROP19 maturity. The 2-, 5-, 10- and 25-yr ROP yields declined 4bps, 9bps, 8bps and 4bps to 2.51%, 2.52%, 2.78% and 3.29% W/w, respectively.
MARKET OUTLOOK: Market focus will be on monetary policy as several central banks are scheduled to meet this week, including US, Indonesia, Philippines, England, and Taiwan. After a slew of weak data out of China, it would be interesting to see how central banks will conduct monetary policy, led by the Fed, in anticipation of slowing global growth. Bond dealers are expected to stay on the side lines ahead of the FOMC. Expectation is for the Fed to hold but with a possibility of an adjustment in their dot plot projections. Meanwhile, ROP demand should remain firm given liquidity brought about by the maturity this week.