Local bonds opened last week on a cautious note, as defensive positioning prevailed. Yields closed up to 12 basis points (bps) higher on Monday, led by weakness in the 4-Year sector. The Treasury Bill auction drew mixed results, with strong demand for the 3- and 6-month tenors pushing front-end yields lower.
Selling continued through Tuesday, as oil rose to USD 85 per barrel, its highest level in a month. Risk sentiment deteriorated, as the US reinstated the blockade in the Hormuz Strait, while Iran commenced strikes on commercial vessels. Elevated yields, particularly in the belly- to back-end tenors, prompted the Bureau of the Treasury (BTr) to reject all bids for the 7-Year FXTN 10-71 auction. High volatility stretched bids wide over a range of 7.000% - 8.300% at an average yield of 7.575%.
The local bond market eventually saw some relief, as optimism from a softer-than-expected US inflation data for June spilled over into PHP bonds. Reduced expectations of near-term policy easing by the US Federal Reserve drew dip-buying in the belly to back end, which carried through on a lighter volume Thursday. Some inversion was observed in the back end, where bond yields closed 4.5 bps lower than 7Y equivalents.
However, renewed selling pressure emerged on Friday, as escalating conflict in the Middle East drove global oil prices higher, raising concerns over higher domestic pump prices and a potential resurgence in inflation. As a result, benchmark yields ended the session 2.5 to 7.5 bps higher across the curve, with trading activity concentrated around the 3Y to 7Y tenors.
Tuesday brings the slightly longer-dated FXTN 7-70 auction, with indicative range currently at 7.100% - 7.225%. The re-issuance is expected to attract demand from investors taking advantage of higher yield levels.
Some flattening of the yield curve is anticipated from fresh front-end supply and light activity in the back end. Buyers on dips are seen keeping the belly supported, though bearish sentiment is expected to push yields higher across the curve. Bond markets will remain heavily headline driven ahead of Purchasing Managers’ Index, a measure of factory activity, for the US and Eurozone as well as economic data releases throughout the week.
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. — with assistance from Daniel Andrew Tan
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.
