Peso GS Weekly: Cautious investors shift to long-term securities 

WHAT HAPPENED LAST WEEK

The local government securities (GS) market started the week with decent two-way activity. As there was no bond auction by the Bureau of the Treasury (BTr) last week, medium- to long-term bonds were heavily sold, following the strong US jobs data.

Local yields initially rose 9 to 19 basis points (bps) where the 20-year benchmark touched the 6.00% handle. However, bottom-fishers or investors looking for opportunities on recently declining securities were quick to reposition to take advantage of elevated levels, pushing yields down midweek. Their repositioning pared the losses at the onset of the trading week.

Cautious trading was seen for the remainder of the week, with both global bond yields and the dollar-peso exchange rate remaining elevated. Participants also lightened positions ahead of the much-awaited US Consumer Price Index print.

Week-on-week, yields ended mixed and traded within a 3- to 6-bp range.

Market Levels (week-on-week)

WHAT WE CAN EXPECT

A number of risk events lined up for this week may impact the direction of yields in the local bond market. Today, the BTr awarded PHP 15 billion of the 7-Year Fixed Rate Treasury Note (FXTN) 10-66 at an average of 5.690%, with accepted yields ranging from 5.650% to 5.700%.

Tomorrow, the market expects the Bangko Sentral ng Pilipinas to continue its easing cycle and reduce policy rates by another 25 bps to bring the overnight Reverse Repurchase Rate (RRP) to 6.00% on the back of lower inflation.

On Thursday, FXTN 5-76 will mature and PHP 120 billion of liquidity will be freed up. At current levels, we remain better buyers of GS, especially in the back-end of the curve, to take advantage of the potential move lower in yields.

See our top picks below:

Note: Rates are indicative and subject to refresh.