Peso GS Weekly: Lock-in gains amid weak risk sentiment

WHAT HAPPENED LAST WEEK

The local government securities (GS) market had a muted start last week, opening levels around 2 to 5 basis points (bps) higher from the preceding week’s close. Players were hesitant to reinstate positions as they wait for stronger catalysts that could improve market sentiment. Elsewhere, Treasury Bills (T-Bill) were awarded 2 to 11 bps higher week-on-week, with the Bureau of Treasury (BTr) upsizing the 3-month T-Bill by PHP 2.6 billion due to strong demand.

The BTr had no bond auction last Tuesday, but value remains in bonds within the 5- to 7-Year space near the 5.975-6.075% range. Midweek, benchmark yields rallied 2.5 to 9 bps higher, driven by lower US Treasuries overnight. This was further boosted by dovish comments from Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr., reaffirming that the BSP would likely cut key interest rates by 25 bps at the December meeting and about 100 bps in 2025.

Escalating tensions in Russia and Ukraine led to a waning risk sentiment. As such, some players de-risked ahead, but was met with opportunistic buyers banking on further easing from BSP. By Thursday, the USD/PHP exchange rate trended higher and revisited all-time highs, leading to a weak appetite for longer durations.

Week-on-week, local GS yields ended anywhere between 50 bps lower to 11 bps higher.

Market Levels (week-on-week)

WHAT WE CAN EXPECT

The Bureau of Treasury will reissue the Fixed Rate Treasury Note 7-67 for this week’s 5-Year bond auction, with an early indicative range of 5.95-6.10%. Market absorption of the added supply is expected to be strong, as this is the second-to-last bond auction for the year. Players may seek a premium amid weak risk sentiment.

Market focus remains on global developments and the US dollar, as these could temper expectations for immediate rate cuts by the BSP. At current levels, we continue to recommend to sell as yields go down and lock-in gains.

See our top picks below:

Note: Rates are indicative and subject to refresh.