Peso GS Weekly: Investors stay cautious about the BSP rate decision
At current levels, take profit from longer-tenor bonds and shift to the belly of the curve.
WHAT HAPPENED LAST WEEK
It was a choppy session last week as players digested the local inflation print release and grappled with a volatile global bond market. Initially, the week started out on a positive note, with local yields trading 5-7 basis points (bps) lower as it traced the move lower in US Treasury yields. However, the rally was met with a hotter-than-expected local Consumer Price Index (CPI) print, which came out at 4.4% vs the 4.1% year-on-year expectation.
The higher-than-expected inflation print â combined with comments from the Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. who said that the previous forecast of an August cut is less likely to occur â led to a sell-off in the local bond market. As such, yields ended the day higher by around 7 bps, erasing all gains made the previous day.
In last weekâs auction on Tuesday, the Bureau of the Treasury (BTr) fully awarded the reissuance of the 5-Year Fixed Rate Treasury Note 7-67 at an average yield of 6.107%, with accepted yields ranging from 6.05% to 6.128%.
Wednesday was another positive day for the local bond market as comments from the Department of Finance Secretary Recto about the potential inclusion of peso bonds in an offshore bond index fueled another round of buying.
The bulk of the buying interest was seen in the 5-Year to 10-Year space where local yields ended the day lower by around 3 bps. Local bonds followed the retracement of global yields, which spurred the local yield curve to shift higher by around 3-7 bps on a week-on-week basis.
Market Levels (week-on-week)
WHAT WE CAN EXPECT
At current levels, we expect local yields to trade higher by 5-10 bps should the BSP keep key rates unchanged this Thursday. However, this should remain supported as players on the sidelines remain ready to accumulate at cheaper levels. Additionally, we continue to pick up value in medium-term bonds and recommend repositioning through the BTrâs upcoming auctions.
See our top picks below:
Note: Rates are indicative and subject to refresh.