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Peso GS Weekly: Buying at the belly
Market players stay opportunistic, as the curve steepens with short-term yields falling and long-term yields rising.
By Metrobank Local Currency Trading Department and Maria Christina Virtudazo
WHAT HAPPENED LAST WEEK
The local government securities (GS) market started last week by mirroring the global market sell-off, with both clients and dealers selling their bonds. Offshore players also de-risked, as the USD/PHP exchange rate surged to a new year-to-date high at 58.70.
Elsewhere, strong support remained in Treasury bills (T-bills), with new issuances awarded at average rates that were 4 to 27 basis points (bps) lower week-on-week. The strong demand allowed the Bureau of the Treasury (BTr) to increase the awards in 3- and 6-month T-bills to PHP 9.8 billion from the initial PHP 7 billion announced.
Last Tuesday, the BTr fully awarded the reissuance of the 7-Year Fixed Rate Treasury Note 10-69 within market indications at an average rate of 6.249% and a high of 6.290%. However, the auction results failed to support local bonds, with yields continuing to trend higher.
Appetite for risk remained weak in the GS space, with bulk of the activity mostly seen in the belly of the curve. However, better buying interest emerged by Thursday, following the sharp rally in US Treasury yields overnight on slower-than-expected US Core Consumer Price Index print at 0.2% month-on-month against a 0.3% estimate. By Friday, dovish US Federal Reserve comments sparked opportunistic buying interest in the local GS space, especially in the belly of the curve.
On a week-on-week basis, yields traded anywhere between 31 bps lower to 18 bps higher from the previous week’s close.
Market Levels (week-on-week)
BVAL Rates
| Tenor | 17-Jan-25 | 10-Jan-25 | Change |
|---|---|---|---|
| 3 Mos | 5.50% | 5.75% | -0.25% |
| 6 Mos | 5.63% | 5.82% | -0.19% |
| 1 Year | 5.90% | 5.86% | 0.04% |
| 2 Years | 5.95% | 5.96% | -0.01% |
| 3 Years | 6.07% | 6.00% | 0.06% |
| 4 Years | 6.15% | 6.04% | 0.11% |
| 5 Years | 6.20% | 6.06% | 0.13% |
WHAT WE CAN EXPECT
For tomorrow’s auction, the BTr will reissue the 10-Year Fixed Rate Treasury Note 10-72, with our indicative range at 6.325% to 6.475%. We expect players to target the higher end due to back-end supply risks.
At current levels, global bond movements will likely continue influencing GS price action in the absence of local economic data.
See our top picks below:
Top Picks - GS
| Security | Yield to Maturity | Tenor (Years) | Maturity |
|---|---|---|---|
| RTB 5-13 | 5.72% | 0.56 | 12-Aug-25 |
| RTB 5-15 | 5.91% | 2.11 | 4-Mar-27 |
| RTB 5-17 | 6.10% | 3.59 | 22-Aug-28 |
| RTB 5-18 | 6.15% | 4.11 | 28-Feb-29 |
| FXTN 20-17 | 6.23% | 6.49 | 19-Jul-31 |
(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.)