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Peso GS Weekly: Best value at the belly
Activity remains concentrated in medium-term bonds after BSP’s rate pause.
By Metrobank Local Currency Trading Department and Maria Christina Virtudazo
What happened last week?
The local government securities (GS) opened last week with two-way trading despite the upward move in global yields. Buying interest emerged, particularly in the medium-term bonds. Elsewhere, the Bureau of the Treasury (BTr) concluded its weekly Treasury bill auction with average yields rising by 2.7 to 8.5 basis points (bps) week-on-week.
On Tuesday, two-way activity persisted as traders positioned ahead of a potential Bangko Sentral ng Pilipinas (BSP) rate cut. The BTr fully awarded the PHP 30 billion reissuance of the 7-Year Fixed Rate Treasury Note 10-69 at an average rate of 5.973%, with an additional PHP 5 billion through the tap facility. The auction saw solid demand, but the market reaction remained muted.
Mid-week, profit-taking ensued as global yields edged up, prompting some players to trim exposure in the 4- to 10-Year space. However, the GS market saw heightened volatility after stronger-than-expected US inflation data led to a sharp pullback in bids by 7 to 15 bps. The market stabilized, as players anticipated a BSP rate cut, but monetary authorities ultimately held rates steady at 5.75%, triggering a sell-off and pushing yields 5 to 12 bps higher.
By Friday, sentiment improved, as the local GS market mirrored the decline in US Treasuries. Financial-market players focused on medium-term bonds, taking advantage of higher levels, following the BSP’s rate pause. On a week-on-week basis, local yields ended anywhere between 1 bp lower to 22 bps higher.
BVAL Rates
| Tenor | 14-Feb-25 | 7-Feb-25 | Change |
|---|---|---|---|
| 1M | 5.04% | 4.82% | 0.22% |
| 3M | 5.16% | 5.17% | -0.01% |
| 6M | 5.56% | 5.50% | 0.07% |
| 1Y | 5.74% | 5.72% | 0.02% |
| 2Y | 5.80% | 5.78% | 0.02% |
| 3Y | 5.85% | 5.83% | 0.02% |
| 4Y | 5.90% | 5.88% | 0.03% |
| 5Y | 5.95% | 5.92% | 0.03% |
| 7Y | 6.04% | 6.00% | 0.05% |
| 10Y | 6.13% | 6.12% | 0.01% |
| 20Y | 6.35% | 6.35% | 0.00% |
| 25Y | 6.30% | 6.30% | 0.00% |
What can we expect?
BSP Governor Eli Remolona Jr. reiterated plans for a gradual easing trajectory and suggested a 200-bp Reserve Requirement Ratio cut, possibly before the April policy meeting.
In the auction front, the BTr will reissue the 10-Year FXTN 10-72 on Tuesday, with an indicative range of 6.10-6.25%. Bond players are expected to be more strategic given the delay in BSP rate cuts.
Top GS Picks
| Security | Yield to Maturity | Tenor (Years) | Maturity |
|---|---|---|---|
| RTB 5-13 | 5.66% | 0.48 | 12-Aug-25 |
| FXTN 7-62 | 5.75% | 0.99 | 14-Feb-26 |
| RTB 5-15 | 5.78% | 2.04 | 4-Mar-27 |
| RTB 5-17 | 5.83% | 3.51 | 22-Aug-28 |
| RTB 5-18 | 5.90% | 4.03 | 28-Feb-29 |
| FXTN 20-17 | 5.98% | 6.42 | 19-Jul-31 |
Note: Rates are indicative and subject to refresh.
(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)