Peso GS Weekly: Mild rally seen on easing risks

 What happened last week  

Local bonds opened last Monday on better risk sentiment, as tensions eased between the US and Iran. Oil prices opened the week lower, resulting in buying activity across the curve amid a softer inflation outlook.  

Demand in the belly was mixed, with buying interest in the 4-Year FXTN 7-70 pulling yields lower by 13 basis points (bps) to close at 7.300%. Elsewhere, investors were seen lightening positions in the 3-Year FXTN 7-68, ahead of its scheduled auction.  

Front-end yields were little changed on Monday and remained broadly range bound through the rest of the week, as investors continued to keep overall duration short.

On Tuesday, the Bureau of the Treasury’s (BTr) dual-tranche bond auctions took center stage, drawing strong demand at both ends. The belly FXTN 7-68 (3Y) reissuance was fully awarded at an average accepted yield of 7.217%, with an auction high of 7.240%. The back-end FXTN 20-27 (20Y) saw unexpectedly strong demand, prompting the BTr to open its tap facility and raise an additional PHP 10 billion at the auction average yield of 7.684%.  

Buying interest carried through the secondary market, likely from participants priced out of the primary auctions. Despite some profit-taking, yields closed 1.5 bps to 15 bps lower across tenors.

Momentum faded thereafter, with trading turning more two way midweek, particularly in the 3- to 4-Year sector, where yields ended relatively unchanged. Still, broader market yields declined by as much as 18.4 bps on Wednesday, ahead of the US Federal Reserve (Fed) policy decision.  

Thursday took a bearish turn following a selloff in US Treasuries overnight, as Fed policymakers held rates steady. Though the decision was widely expected, market participants interpreted the outcome as a hawkish hold. Furthermore, renewed tensions in the Middle East once again raised concerns of global oil supply disruptions and risks of inflation resurgence.

Toward the week’s close, the local bond market saw improved sentiment, as the USD/PHP exchange rate trended lower and opportunistic buyers picked up elevated yields from the previous session. Activity again centered on the belly, led by the 3-Year benchmark which closed 9 bps lower day-on-day. Overall, most yields closed 5-10 bps lower on Friday.

BVAL Rates  

What we can expect 

Markets are expected to remain relatively neutral this week, although with key drivers seen driving two-way direction.  

Headlines around the dynamic situation in the Middle East and global energy supply continue to dominate investor sentiment. Despite reports of another ceasefire and peace proposals, market players remain cautious over the fragility of prior reconciliation efforts.  Additionally, eyes turn to the July Philippine CPI release. Metrobank forecasts headline inflation at 6.5% in July, a slight uptick from the 6.4% print in June.

On the supply front, the BTr is set to auction the 5-year FXTN 20-17, with early indicative yields in the 7.200% to 7.350% range. Absent any significant risk events, healthy participation is expected given the market’s preference for the tenor bucket.

Top GS Picks  

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. 

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.