PESO FIXED INCOME
What Happened: This week’s Php 20 Bn 7-yr bond re-issuance was 2.8 times oversubscribed and fully awarded at an average rate of 4.322. This led the BTr to open its tap facility (for the second bond auction in a row) to raise another Php 20 Bn. Treasurer de Leon also announced the BTr’s planned “prize bonds” in mid-November, which are only limited to individuals, associations and cooperatives.
The holiday-shortened week was lackluster after the auction. Total volume amounted to just Php 50 Bn. Yields on the active securities fell by 3 to 8 bps week on week, as the policy rate cut from the Fed added more pressure to the downward trend in yields. The 2- and 10-yr BVAL benchmarks were lower by 1bp to 3.88% and 4bps to 4.67, week-on-week, respectively.
What We Expect: Looking ahead, another round of Treasury bills will be on offer from the BTr, with expectations of lower averages. Market players also anticipate the release of the October CPI, which is estimated to come out at 0.8%, almost flat from the 0.9% in September. Despite the local inflation print appearing to have bottomed out, yields should trade with a downward bias as an injection of liquidity from a 100-bp RRR cut will be in effect in November.
DOLLAR FIXED INCOME
What Happened: US Treasury markets traded with risk-on tone mostly during the London session after France agreed to a BREXIT extension until 31 January. Continued optimism over US-China trade war as US President Trump said that trade deal is ahead of schedule added to positive sentiments.
The Fed delivered the widely expected 25-bp rate cut and removed the phrase “act as appropriate to sustain expansion” from its statement signaling an end to the series of cuts. The USTs curve bull flattened after the decision despite stronger than expected US 3Q GDP at 1.9% vs 1.6% expectation.
Week-on-week, the UST yields of the 2-yr, 5-yr, 10-yr and 30-yr dropped 6bps, 8bps, 8bps and 10bps to 1.60%, 1.55%, 1.71% and 2.19%, respectively. In the local front, ROPs were defensive ahead of the FOMC meeting and ended mixed week-on-week. The yields of the 2-yr, 5-yr and 10-yr ROPs slightly decreased by 2bps to 2.23%, 2.17% and 2.37%, respectively while the 25-yr ROP rose 2bps to 2.88%.
What We Expect: Expect USTs to stay defensive with employment data and trade dispute in focus. ROPs will follow trend, though risk premiums are expected to stay wide alongside general widening of credit spreads.