PESO FIXED INCOME
MARKET REVIEW: After the Monetary Board chose to maintain policy rates, some local bond market players were seen trimming their position as a reaction to BSP’s decision. At the end of the week, the 10-yr BVAL benchmark rate closed lower by 12bps to 5.13%, while the 2-year benchmark rate decreased by 10bps to 5.00%, week-on-week. The peso bond yield curve has steepened; the spread between the 10-year bond over the 2-year is no longer negative. Short maturing bonds have steadily declined following the 2% cut in bank reserves and anticipation of a BSP rate cut soon. While the key overnight rate was left at 4.75% in the June 20 meeting, the forward guidance strongly stated that policy rate and bank reserve requirement cut is “inevitable” and will happen this year.
MARKET OUTLOOK: Market players’ attention will be on the release of the 3Q19 borrowing schedule. Confirmation on reduced borrowing will firm up the trend. The distribution of the issuance skewed to short or longer bond maturity will direct yield curve changes.
DOLLAR FIXED INCOME
MARKET REVIEW: The US Treasury yields touched two-year lows post-FOMC as the market expects that a rate cut is imminent. Heightening geo-political concerns between the US and Iran also contributed to the descent in yields. The 10-Yr UST yield closed the week at 2.04%, 4bps down W/w. The rest of curve also declined: the 2-, 5-, and 30-Yr fell 4.8bps, 3.2bps, and 4.4bps, W/w, respectively. ROP bonds rallied along with global bonds, gaining up to 2ppts in price W/w. At the week’s close, ROP yields declined across the curve with the 2-, 5-, 10-, and 25-Yr tenors falling 14.4bps, 12.6bps, 21.5bps, and 20.7bps, W/w, respectively.
MARKET OUTLOOK: Next week is supposed to be the culmination of the US and China trade dispute at the G-20 Summit in Osaka, Japan. Market players will closely monitor US Pres. Trump and China Pres. Xi Jinping’s meeting, hoping for a resolution. A positive outcome should improve risk-on sentiment and may see a temporary correction in bonds.