Peso GS Weekly: Better selling outpaces initial buying after key central bank decisions

WHAT HAPPENED LAST WEEK

The local government securities (GS) market saw increased volatility last week after the Bangko Sentral ng Pilipinas (BSP) Monetary Board members provided guidance as to what to expect next month.

The Bureau of Treasury (BTr) fully awarded the reissuance of the 10-Year Fixed Rate Treasury Note 10-72 at an average of 5.967% and was seen trading at 5.920% mid-week, which was 4.7 bps lower compared from its auction average a day prior.

Following the US Federal Open Market Committee meeting where the US Federal Reserve cut key rates by 50 basis points (bps), Department of Finance Secretary Ralph Recto also mentioned that he will support a similar 50-bp cut in next month’s BSP policy meeting.

Later in the week, the BSP announced a 250-bp cut to the Reserve Ratio Requirement (RRR) of big banks. This would bring the rate to 7% and will be effective starting October 25, 2024.

All these developments led the GS curve to touch new year-to-date lows with 5- and 10-Year benchmark bonds touching 5.5% before sizable profit-taking persisted. On a week-on-week basis, the curve flattened with bonds moving lower by 28 to 50 bps.

Market Levels (week-on-week)

WHAT WE CAN EXPECT

For those looking to reposition, better value may be seen by participating in the BTr’s upcoming auctions instead of the secondary market. Additionally, the BTr is set to release its borrowing schedule for the fourth quarter this week.

Given current levels, we expect the BTr to continue favoring supply in the 5 to 20-Year bonds as outstanding borrowings are heavily concentrated in the short-term. However, with the BTr significantly ahead of their target domestic borrowings for the year, they may decide to cut volumes offered for bonds and continue to increase its supply in T-bills due to increased demand.

See our top picks below:

Note: Rates are indicative and subject to refresh.