PESO FIXED INCOME
MARKET REVIEW: After the September CPI printed lower than expectations, peso yields rallied and ended lower by 12 bps for the short-end bonds and 20 bps for the belly securities. The rally was also supported by BSP’s announcement of a reserve requirement ratio (RRR) cut.
MARKET OUTLOOK: Next week, the Bureau of Treasury (BTr) will auction Treasury Bills, which are expected to fetch lower rates. Yields should continue to trend downwards but could be met with selling pressure as profit takers may emerge.
DOLLAR FIXED INCOME
MARKET REVIEW: Disappointments on data were the theme for the week, as US manufacturing and services reports missed estimates. The only bright spot was the unemployment rate, which fell to 3.5% for September from 3.7% the previous month. The misses on data strengthen concerns of an impending recession.
Given the risk-off sentiment, the demand for safe havens led the US treasury yield curve to steepen. Week on week, yields declined by as much as 22 bps, led by the front end. The 2-, 5-, 10-, and 30-yr US treasury yields closed at 1.404%, 1.347%, 1.529%, and 2.015%, respectively.
In the local USD denominated bond market, ROPs followed suit with the 2-, 5-, 10-, and 25-yr yields falling by 6, 9, 15, and 11 bps to 2.09%, 2.00%, 2.16%, and 2.63%, respectively, week on week.
MARKET OUTLOOK: We expect emerging market bonds, including ROPs, to trade defensively this week. The focus will be on trade talks between the US and China, a widely viewed impediment to global growth. Also, the market will look at how the Fed may step in to support the US economy.