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Peso GS Weekly: Dovish data flattens yield curve
Local bond market rallies, as soft inflation and GDP data reinforce BSP’s dovish tone, driving strong interest in medium to long tenors.
By Metrobank Local Currency Trading Department and Janssen Roman
What happened last week
The local government securities (GS) market started the week cautiously, tracking the uptick in global bond yields.
Activity in the local GS market was subdued at first, but interest gradually picked up, particularly in the 3-4Y and 8-10Y tenors, where good two-way flow was observed. A key focus was on the new 10-year benchmark (10-73), which continued to attract interest, while the weekly T-bill auction saw strong demand, with yields largely unchanged from the prior week.
Momentum shifted midweek following the release of a weaker-than-expected April inflation at 1.4%, spurring a brief bond rally. Dealers quickly took profits ahead of the 7-year bond auction (10-69), which was well-received and with awarded yields being within expectations. Dovish comments from Finance Secretary Raph Recto and strong demand in the 8-10Y space helped flatten the curve, with most benchmark yields drifting lower, led by the newly reissued 10-69.
The rally continued into the latter part of the week, as the slower-than-expected first quarter gross domestic product (GDP) growth of 5.4% reinforced views of the central bank’s policy easing bias.
Buying activity remained broad-based, supported by central bank Governor Eli Remolona’s signal of possibly up to 75 basis points (bps) of rate cuts ahead. However, some profit-taking emerged toward the weekend, trimming gains, particularly in longer-dated bonds.
The curve ended the week mostly lower, especially in the 8-10Y sector, while the short end remained well-supported. The market now turns its attention to this week’s dual tranche auction in the 3Y and 25Y space by the Bureau of the Treasury (BTr), with early guidance suggesting attractive entry points.
BVAL Rates
| Tenor | 9-May-25 | 2-May-25 | Change |
|---|---|---|---|
| 1M | 5.25% | 5.23% | 0.02% |
| 3M | 5.52% | 5.51% | 0.01% |
| 6M | 5.67% | 5.67% | 0.00% |
| 1Y | 5.72% | 5.72% | 0.00% |
| 2Y | 5.76% | 5.77% | -0.01% |
| 3Y | 5.79% | 5.80% | -0.02% |
| 4Y | 5.82% | 5.84% | -0.02% |
| 5Y | 5.87% | 5.91% | -0.04% |
| 7Y | 5.98% | 6.05% | -0.07% |
| 10Y | 6.14% | 6.26% | -0.12% |
| 20Y | 6.25% | 6.31% | -0.06% |
| 25Y | 6.25% | 6.30% | -0.05% |
What we can expect
With recent soft inflation and GDP prints supporting the BSP’s dovish stance, strong buying interest is expected to persist, particularly in the 8-10Y sector where term premiums remain attractive.
Attention will now shift to the upcoming BTr dual tranche auction in the 3Y and 25Y space, which may drive positioning across the curve. While short-dated bonds may hold steady, medium- to long-tenor bonds are likely to remain supported, especially if global yields stay subdued and central bank rhetoric continues to lean toward easing.
Top GS Picks
| Security | Yield to Maturity | Tenor (Years) | Maturity |
|---|---|---|---|
| RTB 5-18 | 5.78% | 3.8 | 28-Feb-29 |
| FXTN 7-70 | 5.88% | 5.21 | 27-Jul-30 |
| FXTN 10-69 | 5.98% | 7.35 | 15-Sep-32 |
| FXTN 10-72 | 6.08% | 8.71 | 25-Jan-34 |
| FXTN 10-73 | 6.19% | 9.97 | 28-Apr-35 |
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.)