Peso GS Weekly: Take advantage of rallies 

WHAT HAPPENED LAST WEEK

Volatility took over the local government securities (GS) market, with most benchmark tenors ending scattered from 2.5 basis points (bps) lower to 10.5 bps higher. Initially, the local GS market saw better buying after the Bureau of the Treasury’s (BTr) 5-Year auction of Fixed Rate Treasury Note (FXTN) 7-67 came out stronger, with players flocking to the secondary market given the reduced auction offering of PHP 15 billion from PHP 30 billion.

On Tuesday, the 5-Year bond was awarded below market indications at an average rate of 5.508% and a high of 5.525%. The auction was also fully awarded with strong market participation of more than five times the offered volume. However, buying momentum proved to be short-lived as market players saw an opportunity to take profit on their GS holdings given increasing tensions in the Middle East and with US Nonfarm Payrolls print looming by.

Elsewhere, the end of the week saw the local September Consumer Price Index print below estimates at 1.9% vs the 2.5% Bloomberg consensus. However, this would fail to significantly influence GS yields as profit-taking activity remained to be the theme towards the week’s close.

By Friday’s closing, the curve steepened with the 10-Year FXTN 10-72 and the 20-Year FXTN 20-27 ending at 8.5 and 10.5 bps higher week-on-week at 5.75% and 5.91%, respectively.

Market Levels (week-on-week)

WHAT WE CAN EXPECT

Moving forward, given the significant retracement seen in the GS space from its year-to-date lows, we advise clients to start buying at current levels, especially towards the back-end of the curve as these would benefit the most from any further rallies heading into the easing cycle.

Additionally, we remain biased to build positions on further sell-offs, especially with the limited supply coming out of the BTr’s Treasury bond offerings, and with the maturity of FXTN 5-76 drawing closer in which PHP 120 billion worth of funds will be freed up on October 17.

See our top picks below:

Note: Rates are indicative and subject to refresh.