PESO FIXED INCOME
MARKET REVIEW: Amid renewed fears of a global recession, there was strong demand for short-term papers in the Treasury Bill auction. Given the cautious sentiment in the local bond market, selling bias was evident from market players this week on relatively thin volume (just Php 66.5 Bn for the week). Yields rose higher by 5-13 bps in the belly of the curve, and the 2- and 10-yr BVAL benchmarks rose by 0.7 bps and 7.8 bps, respectively.
MARKET OUTLOOK: Market players will look to the 3-yr bond reissuance (FXTN 3-24) from the BTr on Tuesday, with early market indications of 3.90% to 4.05%. Moreover, market players will be taking cue from developments on the Jackson Hole Symposium. We could see yields move with a downward bias as the Fed is poised for another rate cut in its September meeting.
DOLLAR FIXED INCOME
MARKET REVIEW: Fed Chairman Powell suggested that a September rate cut would be reasonable, given a growing list of global concerns. He also said that they would “act as appropriate” to sustain the expansion of the US economy. However, Powell’s remarks were quickly overshadowed by an unexpected escalation of trade tensions between China and the US. Risk assets nosedived, while US Treasury yields rallied to new lows. Week on week, the 2-yr UST benchmark yield rose by 6 bps to 1.530% and the 5-yr UST benchmark was flat at 1.415%. However, the 10- and 30-yr UST benchmark yields fell by 1-2 bps to 1.535% and 2.025%, respectively.
Meanwhile, ROPs saw some profit-taking during the week, and sold-off towards the week’s close given the risk-off tone. Week on week, ROP yields rose by 3.5, 6, 16 and 10 bps to 2.12%, 2.08%, 2.29% and 2.72% for the 2-, 5-, 10- and 25-yr tenors, respectively.
MARKET OUTLOOK: Market players will take cue from developments on the trade war, whether positive or negative, before taking new positions. Also, the release of the US 2Q GDP on Thursday and PCE Deflator on Friday will be key data to look out for.