Peso GS Weekly: Better value in the belly amid rising yields 

WHAT HAPPENED LAST WEEK

The local government securities (GS) market had a challenging week marked by cautious sentiment and rising yields across the curve. Activity for the week was mostly subdued as participants awaited key events such as the last 20-Year auction for the year.

In last Monday’s Treasury bills auction, the average awarded yields rose modestly by 1.7 basis points (bps) across the curve. Participants de-risked ahead of the Bureau of Treasury’s (BTr) auction, as risk aversion deepened amid elevated global yields and rising USD/PHP exchange rate.

Last Tuesday, the BTr fully awarded the reissuance of the 20-Year Fixed Rate Treasury Note 20-27 at an average of 6.095%, with accepted bids ranging from 6.048% to 6.12%, or just within market indications. The auction met light demand despite a reduced offer size of PHP 15 billion from the usual PHP 30 billion.

Rising US Treasury yields due to inflation concerns from a ‘Red Sweep’ in the US government added pressure on local yields, leading to further selling of bonds. Elsewhere, some participants were already seen reinstating positions on bonds in the 5- to 10-Year space. Week-on-week, GS yields ended anywhere between 2 bps lower to 18 bps higher across the curve.

Market Levels (week-on-week)

WHAT WE CAN EXPECT

With limited economic data expected in the coming days, market participants will monitor global market performance for any new leads.

We reiterate our view of the curve steepening and recommend clients to stay in the belly of the curve for better value. There will be no bond auction for this week. Instead, the next auction will be next week with the BTr scheduled to auction a 5-Year bond with no specific security yet.

See our top picks below:

Note: Rates are indicative and subject to refresh.