PESO FIXED INCOME
What Happened: Alongside CPI and GDP prints, market liquidity drove yields across the curve to rally. The short-end outperformed, causing the yield curve to steepen further. However, as positive headlines on the US-China Trade War sparked risk-on sentiment in markets, local yields sold off tracking the movement of US Treasuries. Week on week, yields on the short-end closed sideways, while those in the belly ended higher by 7 to 8 bps. On BVAL rates, the 2-yr was almost flat at 3.877% and 10-yr rose marginally to 4.674%.
What We Expect: Yields should trade sideways with upward bias, as local inflation seems to have bottomed out. Although any uptick may be met by bargain hunters ahead of the PHP197.2Bn bond maturity by month end. Meanwhile, progress on trade talks will continue to drive global interest rates, including peso yields.
DOLLAR FIXED INCOME
What Happened: US Treasuries sold-off substantially as optimism on the US-China trade dispute was in the headlines this week. It began with a report saying that a partial trade deal was close, which was followed by another one which said that both parties would pledge to roll back tariffs on each other’s goods in phases. Market players were excited by these headlines, as risk assets rallied strongly, and US Treasury yields were at their highest levels in three months.
Yields closed the week higher by 12bps to 1.67% on the 2yr, and by 20 to 23 bps to 1.75%, 1.94%, and 2.42%on the 5-, 10- and 30-yr bonds, respectively.
ROPs sold off as well, but were tighter against the US benchmarks, due to bargain hunting on some EM names. Week on week, the 2-, 5-, 10-, and 25-yr ROP yields rose by 7, 11, 20, and 16 bps to 2.13%, 2.24%, 2.55%, and 3.03%, respectively.
What We Expect: Looking ahead, market players will look to developments on the de-escalating trade tensions between the US and China. If the trade negotiations continue to progress, US Treasury yields could continue moving in a bear-steepening direction. Data releases from the US include CPI, PPI, and retail sales. Should data come out better than expected, UST yields may move higher.