Trading in the Peso Government Securities (GS) market was relatively quiet at the start of the week, as players turned cautious ahead of the Philippines’ June inflation data release last Tuesday. In anticipation of sizeable supply from a 5Y auction the following session, 10Y Peso GS yields sold off to around 7.15% on Monday.
Tuesday saw a modest rally in the local bond market after data showed June inflation at 6.4%, slightly lower than the 6.5% median estimate in a Bloomberg survey. The Bureau of Treasury (BTr) fully awarded its 5-Year FXTN 20-17 offering, seeing decent demand with a bid-to-cover ratio of 2.4 times and an average yield of 6.869%. However, yields ended mostly unchanged at the end of the session, with rallies capped from profit-taking activities.
The succeeding sessions were dominated by selling pressure following reports of conflict escalation in the Middle East. Bonds were broadly offered on Wednesday with trading activity concentrated in the 3-5Y tenors. Both FXTNs 7-68 (3Y) and 7-70 (4Y) underperformed, with yields rising roughly 10.5 basis points (bps) to close at 6.645% and 6.480%, respectively. The newly-issued FXTN 20-17 found some support given its relative yield premium, though still sliding 6 bps higher to 6.925%. Further out the curve, the 8-10Y tenors also weakened by as much as 9 bps across the segment.
The trend continued through Thursday, as the US and Iran continued to trade air and missile strikes with little hope for de-escalation. More aggressive de-risking gapped yields 10-35 bps higher day-on-day, buoyed slightly by dip-buyers taking advantage of elevated yields.
Last Friday, local bonds opened on firmer footing amid generally stable global markets. Participants were seen selectively buying into weakness following the sharp sell-off over the past few sessions. Trading activity gravitated toward the belly, with FXTN 7-70 (4Y) accounting for nearly a quarter of total trades to bring yields lower by 11bps to 6.905%. Excess demand spilled over to the similar tenor RTB 5-19, outperforming the rest of the curve and closing 18 bps lower at 6.900%.
Demand for the front end through belly bonds pulled yields 6-18 bps lower along the curve, while the back end remained largely muted. FXTN 10-71 (7Y) traded at 7.125% ahead of its auction the following week. Overall, the yield curve steepened, as defensive positioning kept front-end yields compressed. Yields from the 1Y to 10Y tenors rose as much as 21 bps week-on-week, with the 7Y sector underperforming the most in the space. Back-end yields were anchored, with the 20Y and 25Y firm at 7.033%.
This week, market participants turn their attention to the upcoming FXTN 10-71 (7Y) auction, with an indicative range initially set at 7.075% - 7.200%. Broad sentiment remains closely tied to geopolitical developments, particularly in the Middle East.
Offshore, the US’ June inflation report due Tuesday evening, Philippine time, remains one of the most closely watched figures, as market players look to gain further insight on the Federal Reserve’s policy trajectory.
Preference is to stay defensive toward the front-end of the curve, with opportunistic entry on yield spikes in the 2-5Y tenors. Consider remaining underweight duration amid expectations for higher yields across the curve, driven by mounting geopolitical weather-related risks to Philippine growth and inflation.
Note: Rates are indicative and subject to refresh.
For more information on Peso Government Securities, you may reach out to your Wealth Specialist or log in to Metrobank Wealth Manager. As markets shift, stay prepared with timely access and a discounted brokerage fee of 0.050% on every successful buy or sell transaction until December 31, 2026
DANA LOUISE GERONIMO is an Investment Counselor at Metrobank under the Institutional Investors Coverage Division. She built her expertise through her previous roles as an Investment Specialist and as a Financial Markets Sector Management Trainee within the bank. Dana holds a Master’s degree in Industrial Economics from the University of Asia and the Pacific. Outside of work, she enjoys exploring different fitness centers and reading.
