PESO FIXED INCOME
What Happened: The Bureau of Treasury (BTr) partially awarded the Treasury bill auction last week. The 182- and 364-day tenors were both fully awarded, with average rates of 3.174% and 3.576%, respectively- moving sideways from the previous auction. However, the 91-day tenor was rejected due to investors asking for higher rates. Its average would have risen to 3.122% from 2.995% had it been fully awarded.
The local government security market traded sideways with upward bias for most of the week, as some market players trimmed positions while waiting for solid leads. Towards the end of the week, BSP Governor Diokno surprisingly announced a new 100-bp RRR effective early December. Local yields closed the week lower by 7 to 10 bps on the active securities. BVAL rates were also lower by 2 to 3 bps for the 2- and 10-yr benchmarks week on week.
What We Expect: This week, the BTr will re-issue its 7-yr bond (FXTN 7-62), with market indications of 4.30% to 4.425%. Yields should continue to trend downwards, as liquidity will free up when the 100-bp RRR cut takes effect. Market players will continue to monitor developments locally and abroad, with the Fed expected to cut its policy rate by 25-bps in its FOMC meeting next week.
DOLLAR FIXED INCOME
What Happened: US Treasury yields traded sideways with upward bias through most of the week, as strong manufacturing data reduced fears of a recession in the US, with the Richmond manufacturing index outperforming expectations, and the Markit manufacturing PMI printing at 51.5 versus the estimated print of 50.9. Strong 3Q corporate earnings also added to the positive risk sentiment, with US equities nearing their all-time highs. However, the ongoing Brexit uncertainty and a weaker-than-expected durable goods orders worried some market players.
As the week ended with better risk sentiment, US Treasury yields closed higher by 4 to 5 bps across the curve, with the 2-, 5-, 10-, and 30-yr at 1.618%, 1.619%, 1.794%, and 2.287%, respectively.
In the ROP space, trading was muted as new issuances locally and abroad took liquidity away. However, yields tightened against the US benchmarks given the risk-on tone. The 2-yr ROP yield decreased by 2 bps to 2.08%, while the 5-, 10-, and 25-yr ROP yields increased by 2 to 4 bps to close at 2.13%, 2.37%, and 2.84%, respectively.
What We Expect: We expect bonds to remain defensive with ROP yields tracking US Treasuries. Developments from the US Federal Open Market Committee (FOMC), Brexit and US-China trade deal will continue to dominate headlines and drive volatility.