Risk-off sentiment underpinned local market moves last week, keeping investor demand mostly concentrated at the front end of the yield curve.
Preference for shorter-term instruments was evident at the Bureau of the Treasury’s (BTr) auction last Monday, July 20, where both the Cash Management Bills and regular Treasury Bills recorded bid-to-cover ratios between 2-3x. Meanwhile, the rest of the curve saw yields up to 12.5 basis points (bps) higher at the close.
At the 4-Year Bond auction last Tuesday, the BTr was seen partially awarding the FXTN 7-70 reissuance, effectively capping the yield at 7.228%. Spillover bidding interest was seen from participants, who were likely priced out of the auction. However, no outright trades were dealt. Yields further out continued to slip, with 10-Year yields rising 15 bps to 7.400% to align with auction outcomes.
Midweek trading saw similar behavior, as elevated oil prices kept front-end bonds tight and drove yields up toward the back-end.
News reports of Houthi involvement threatened further disruption of naval traffic through the Red Sea, which sent bond yields higher along with oil prices. Thursday’s broad selloff raised yields by 4-17 bps across the curve, though opportunistic buying at elevated levels tempered moves at the back-end.
A lack of positive developments led to more aggressive de-risking on Friday, as bearishness dominated market sentiment.
Escalating tensions between the US and Iran remained a constant backdrop, renewing energy-driven inflation concerns, as Brent crude breached the USD 100 per barrel mark yet again, reaching its highest level in two months. This bout of selling was concentrated around the 4- to 10-Year Bonds, leaving benchmarks 13-20 bps higher on the day. Yields at the close of the week show the FXTN 7-68 (3Y) at 7.350%, the 7-70 (4Y) at 7.430%, and the FXTN 10-71 (7Y) at 7.625%.
This week, market players are seen retaining a defensive stance amid uncertainty. Despite reports of a pause on strikes between the US and Iran, investors remain cautious and reluctant to take strong positions given the risk of renewed escalation.
The T-Bill auction on Monday, July 27, reflects strong sustained demand in the front end, keeping yields anchored with bid-to-cover ratios still between 2-3x.
Market players look toward fresh bond supply in the 3-Year FXTN 7-68 and 18-Year FXTN 20-27, with early indicative ranges at 7.200%-7.350% and 7.700%-7.950%, respectively. Given the prevailing macroeconomic backdrop, demand is expected to remain subdued and tilted toward the front end of the yield curve.
Note: Rates are indicative and subject to refresh.
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Daniel Andrew Tan is an Investment Counselor at Metrobank’s Markets Advisory Division. He leverages his extensive background in retail banking and wealth management to deliver strategic investment advice and bespoke portfolio solutions to clients and stakeholders. He focuses on delivering timely and relevant advice to help navigate shifting financial landscapes with confidence. Outside of work, he stays up-to-date on economic and political developments via podcasts and other alternative media.
