PESO FIXED INCOME
MARKET REVIEW: Healthy demand for the short-term papers caused Treasury Bill rates to fall by 25bps-50bps in the recent auction. Treasury bill rates are at its lowest since September 2018, with the 3-month rate trading below 4% at 3.883%. On lack of fresh leads, local bond yields tracked the upward movements of US Treasuries. Most market players remained skewed on profit-taking resulting in a 3-5bps increase in yields. Meanwhile, liquidity from Treasury bills maturities and dovish statements from Fed Chair Powell prompted investors to reinstate positions. At the week’s close, the 10-yr BVAL benchmark ended 5bps higher to 5.04%, while the 2-year benchmark rate rose 2bps to 4.85%, week-on-week.
MARKET OUTLOOK: BSP Governor Diokno’s clear guidance on a rate cut before further reserve rate cut action will keep interest rates on a downward path.
DOLLAR FIXED INCOME
MARKET REVIEW: US Treasury yields steadily rose until mid-week before reversing on Thursday after Fed Chair Powell’s dovish speech delivered to congress alluded to a Fed rate cut as early as the FOMC meeting in end-July. Unfortunately, a higher-than-expected US CPI print (core inflation 2.1% y/yvs 2.0% expectation) spurred risk on sentiment, sending UST yields to rise 10bps overnight, aggravated by a weak demand for the 30-yr auction. At the end of the week, the UST yields for the 2-yr tenor slightly decreased by 1bp to 1.85% while the ,5-,10- and 30-yr tenors increased by 4bps, 9bps, and 11bps to 1.87%, 2.12% and 2.65% w/w, respectively. Volatility was also seen in the ROP market as bonds tracked UST movement. ROP yields for the 2-,5-,10- and 25-yr tenors rose by 5bps, 8bps, 17bps and 11bps to 2.38%, 2.41%, 2.66% and 3.16% W/w, respectively.
MARKET OUTLOOK: Strong US data has provided a healthy correction to both UST and global bond markets. However, the central view of a Fed rate cut is still intact especially with a slowdown in other economies. The defensiveness in price levels may persist in the short term until more data releases come out in the third week of June, led by US GDP data, and FOMC on month end. We see this correction as a window of opportunity for market players to pick up ROPs at better levels given the scarce supply of bonds in the market.