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Peso GS Weekly: Strong demand fuels bond market rally
Local bond market gains momentum on improved global sentiment, BSP rate-cut view, and strong demand for new 10-year bonds.
By Metrobank Local Currency Trading Department and Janssen Roman
What happened last week
At the start of the week, improved risk sentiment—following positive trade developments between the US and China—drove better buying from both dealers and end-users, pulling yields lower by as much as 4.5 basis points (bps) and flattening the curve. Demand was concentrated in the belly of the curve, particularly in 8–10Y bonds, with 10-72 (8.8Y) outperforming at 6.345%. Despite stronger buying, overall volume remained light at under PHP 14 billion, as investors awaited the pricing of the 10-year jumbo issuance.
The highly anticipated 10-year FXTN was priced at 6.375%, aligning with market expectations. The auction attracted PHP 197.3 billion in tenders, with PHP 135 billion awarded. Strong demand continued post-auction, especially from those priced out, leading to a broad rally across the curve. RTB 5-18 (4Y) was the day’s top performer, closing at 5.86%, as yields fell by as much as 13 bps.
There is compelling value in the new 10-year FXTN, which offers up to 32.5 bps of term premium versus nearby bonds. Investors are encouraged to rotate out of 3–5Y bonds (yielding 5.85–5.975%) and extend duration through the new 10Y. This strategy is expected to benefit from potential BSP rate cuts and a steep yield curve.
As global yields drifted lower, activity in the 4–9Y space remained elevated midweek. The 6.2Y 20-17 bond led with a 4-bp drop to 6.01%, while strong demand for 9Y bonds near 6.265% persisted despite the 10Y offer. Some front-end selling was observed, likely to fund participation in the ongoing 10Y issuance. The BTr has since begun capping awards due to strong demand. With no major local data releases, price action is expected to remain sensitive to global headlines.
BVAL Rates
| Tenor | 16-Apr-25 | 11-Apr-25 | Change |
|---|---|---|---|
| 1M | 5.25% | 5.09% | 0.16% |
| 3M | 5.41% | 5.37% | 0.04% |
| 6M | 5.63% | 5.62% | 0.01% |
| 1Y | 5.68% | 5.78% | -0.10% |
| 2Y | 5.77% | 5.75% | 0.02% |
| 3Y | 5.81% | 5.81% | 0.00% |
| 4Y | 5.87% | 5.89% | -0.02% |
| 5Y | 5.94% | 5.98% | -0.04% |
| 7Y | 6.11% | 6.16% | -0.05% |
| 10Y | 6.30% | 6.26% | 0.04% |
| 20Y | 6.32% | 6.32% | 0.00% |
| 25Y | 6.32% | 6.32% | 0.00% |
What we can expect
The market will focus on the ongoing 10-year bond issuance, with strong participation expected given the attractive coupon and institutional demand. As the yield curve continues to steepen, opportunities may arise to lock in gains on the 8–10Y segment, particularly in bonds like the 10-72. With global risk sentiment improving and BSP rate cut expectations still in play, longer-duration bonds are likely to see sustained interest. Market participants will closely monitor the impact of global headlines and the performance of the newly issued 10-year FXTN. Shorter-term bonds may remain less volatile but offer less premium as the curve steepens further.
Top GS Picks
| Security | Yield to Maturity | Tenor (Years) | Maturity |
|---|---|---|---|
| FXTN 20-14 | 5.73% | 2.41 | 6-Sep-27 |
| FXTN 7-64 | 5.74% | 3.04 | 22-Apr-28 |
| RTB 5-18 | 5.84% | 3.9 | 28-Feb-29 |
| FXTN 7-70 | 5.94% | 5.3 | 27-Jul-30 |
| FXTN 10-69 | 6.10% | 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.)