Peso GS Weekly: Better to buy amid drop in global yields

WHAT HAPPENED LAST WEEK

The local government securities (GS) market started last week with better buying interest, tracking the rally seen in US Treasuries. Dealers took this opportunity to take profit on their holdings to free up liquidity. However, the local yields underperformed the rally in global bonds, as traders were hesitant to take positions amid an elevated USD/PHP exchange rate around the 59.00-level.

Elsewhere, the Bureau of Treasury (BTr) fully awarded all T-bill auctions. Despite reducing the volume offered to PHP 15 billion from the recent PHP 20 billion offerings, awarded yields still rose by as much as 3.4 basis points (bps) week-on-week due to minimal end-user demand.

By Tuesday, the BTr concluded their 5-year bond auction of Fixed Rate Treasury Note 7-67 with an average yield of 5.954% and a high of 5.973%, which was near the lower end of market expectations. Furthermore, the second-to-last auction failed to significantly impact GS yields.

Mid-week, the GS market saw decent activity across tenors despite the lack of catalysts, reaching as much as PHP 78.78 billion of traded volume. Local yields grinded lower, mostly tracking the overnight rally in US Treasuries and the recovering USD/PHP exchange rate. Week-on-week, GS yields ended anywhere between 2 bps lower to 11 bps higher.

Market Levels (week-on-week)

WHAT WE CAN EXPECT

All eyes will be on the November Consumer Price Index print – scheduled for release Thursday. The current consensus in a Bloomberg survey is 2.5%, coming from 2.3% in October. This would influence the BSP’s next move in the December Monetary Board meeting.

On the auction front, there will be no additional supply this week, with the last auction of the year happening next week. At current levels, we maintain the same view and remain better buyers of bonds in the belly of the curve given their better value.

See our top picks below:

Note: Rates are indicative and subject to refresh.