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Peso GS Weekly: Inflation slowdown fuels bond rally
The local bond market was boosted by slower inflation, expectations of lower policy rates, and strong demand for mid-term bonds ahead of new government debt issuance.
By Metrobank Local Currency Trading Department and Janssen Roman
What happened last week
At the beginning of the week, market activity was subdued, with investors focused on managing their position.
Local bonds tracked the movement of US government bonds, but they underperformed in comparison. The government’s auction of Treasury bills showed weaker demand, with yields increasing by 6–15 basis points (bps) compared to previous results.
By mid-week, attention turned to the reissuance of a 5-year bond, 7-70, which saw strong participation and was priced at an average yield of 5.908%. Secondary market activity remained quiet, with bonds like 10-69 (7-year) and RTB 5-18 (4-year) were little changed, closing Wednesday’s trading at 5.995% and 5.810%, respectively. Bonds further out on the curve, such as the 14-year 20-23, ended at 6.250%, reflecting a 2.5-bp drop from the previous close. Investors remained cautious, continuing to monitor global developments, particularly in US trade policies and economic data.
On Friday, a lower-than-expected inflation print of 1.8% for March sparked a significant rally in local bonds. Securities across the curve saw strong demand, with yields falling 5–13 bps, the sharpest drop observed this year. Specifically, RTB 5-18 (4-year) saw its yield drop to 5.72%, while the 5-year 7-70 bond closed at 5.80%. The longer-term 20-27 bond, with a 20-year maturity, closed at 6.33%. This movement further strengthened expectations for a policy rate cut by the central bank at the upcoming meeting.
Looking ahead, market players are preparing for the next government bond auction, particularly the reissuance of the 7-year bond. Participation is expected to be strong, and investors are advised to take advantage of current yields by locking in gains. More long-term bond issuances are expected in the coming months, and investors should prepare for changes in yield levels.
BVAL Rates
| Tenor | 4-Apr-25 | 28-Mar-25 | Change |
|---|---|---|---|
| 1M | 5.13% | 5.11% | 0.02% |
| 3M | 5.35% | 5.30% | 0.05% |
| 6M | 5.68% | 5.62% | 0.06% |
| 1Y | 5.77% | 5.78% | -0.01% |
| 2Y | 5.73% | 5.75% | -0.02% |
| 3Y | 5.74% | 5.78% | -0.04% |
| 4Y | 5.78% | 5.84% | -0.06% |
| 5Y | 5.83% | 5.90% | -0.07% |
| 7Y | 5.95% | 6.04% | -0.09% |
| 10Y | 6.10% | 6.22% | -0.12% |
| 20Y | 6.32% | 6.32% | 0.00% |
| 25Y | 6.32% | 6.31% | 0.01% |
What can we expect
The market will focus on the upcoming reissuance of the 7-year bond, which is expected to see strong participation. With more long-term bond issuances anticipated soon, there may be opportunities to lock in gains at current yields. Market participants will also monitor global risk sentiment and local economic data, which could influence bond prices. Shorter- to medium-term securities may offer greater flexibility as conditions evolve.
Top GS Picks
| Security | Yield to Maturity | Tenor (Years) | Maturity |
|---|---|---|---|
| FXTN 20-14 | 5.68% | 2.41 | 6-Sep-27 |
| FXTN 7-64 | 5.68% | 3.04 | 22-Apr-28 |
| RTB 5-18 | 5.71% | 3.9 | 28-Feb-29 |
| FXTN 7-70 | 5.79% | 5.3 | 27-Jul-30 |
| FXTN 10-69 | 5.93% | 7.44 | 15-Sep-32 |
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.)