PESO FIXED INCOME
What Happened: The new 5-year bond was more than 3 times oversubscribed and priced at 4.25%, falling in the lower range of market’s 4.25% to 4.5% estimate. The BTR acknowledged the robust demand by opening its tap facility for an additional Php 10 Bn, which was also 3 times oversubscribed.
The buying sentiment in the local bond market was also supported by BSP Governor Diokno’s dovish remarks, that a cut in the reserve requirement ratio (RRR) is still on the table this year. Additionally, IMF slashed its projections for the Philippine economy’s growth this year to 5.7% from 6.0%. Week on week, peso yields fell by as much as 13 bps across the curve. The 2- and 10-yr BVAL benchmarks both fell by 5 bps week on week.
What We Expect: The Bureau of Treasury (BTr) will auction off another round of Treasury bills, that are expected to fetch lower rates this week. Peso yields may continue to move lower given the effectivity of the 100-basis point (bp) RRR cut on November 1 and a sizeable maturity on November 22 (FXTN 7-56).
DOLLAR FIXED INCOME
What Happened: US Treasury yields gapped lower as the market opened last week, as some confidence on US-China trade talks faded after the latter said that it wanted further talks on the first phase of a trade deal in order to iron out more details.
For most of the week, yields traded sideways with an upward bias as Brexit headlines were in the spotlight. After days of mixed signals, the European Union and the UK eventually reached a Brexit deal. However, on Saturday, UK lawmakers voted in favor of an amendment that sought more time for the deal to be analyzed.
Week on week, the US Treasury yield curve steepened further as yields on the short-end to the belly closed higher by just 1 to 2.5 bps, while long-ends underperformed, with yields up by 5.5 bps. The 2-, 5-, 10-, and 30-yr closed at 1.574%, 1.568%, 1.754%, and 2.249%, respectively.
Locally, ROPs sold-off as most developments happened outside of the US. The 2-yr ROP yield was just 1 bp higher at 2.10%, but the 5-, 10-, and 25-yr ROP yields rose by 6 to 7 bps to 2.11%, 2.33%, and 2.80%, respectively.
What We Expect: Together with the US-China trade talks, Brexit developments will be monitored as market players look for more signals on trading direction. The US manufacturing and services indices will be closely watched along with durable goods orders, consumer sentiment and housing data.