Peso GS Weekly: Bonds rally on softer macro data

What happened last week  

Bullish sentiment dominated the opening week of August, leading to strong weekly gains in the local bond market.  

Markets opened last Monday on a positive note, with follow-through buying driven by favorable developments, namely progress in US-Iran negotiations, easing oil prices, and a lower spot USD/PHP exchange rate. Buying interest was strongest in the front-end to belly of the yield curve, with spillover demand extending up to the 8-Year tenor.

Investor demand carried into the following session, sparking a bond rally, driven mainly by a weakening dollar and lower oil prices. Early activity was again centered on the front-to-belly, pulling yields lower by around 4-7 basis points (bps) ahead of the afternoon bond auction. At the offering, the re-issued 5-Year FXTN 20-17 saw an unexpectedly high bid-to-cover ratio of 3.1times, with bids ranging from 7.100% to 7.168% and averaging 7.139%.  

The Bureau of the Treasury (BTr) took advantage of strong auction demand, opting to open the tap facility for another PHP 10 billion, which was then oversubscribed by 1.5 times. Strong two-way activity followed, with profit-takers limiting any excess rally in yields.

Market activity was spurred again, as data released last Wednesday showed slower-than-expected Philippine headline inflation in July. Further supported by reports of an interim agreement between the US and Iran, buying activity pushed the curve lower by 5-16 bps overall.

Trading activity turned relatively quiet thereafter, as investors waited for releases of Philippine second quarter (2Q) gross domestic product (GDP) and US labor data. Offshore, market players’ positioning ahead of labor releases led to an overnight sell-off in US Treasuries heading into Friday. Locally, however, persistent buying offset the initial weakness even ahead of the 2Q GDP release.  

Data later showed 2Q GDP at 2.3% year-on-year, below the 2.9% median estimate in a Bloomberg survey and slower than the first quarter number. Softer expectations for near-term monetary tightening by the Bangko Sentral ng Pilipinas drove buying interest in bonds up to the 1-Year sector, pulling front-end yields lower by 10-15 bps, while the rest of the curve stayed mostly unchanged.

Week-on-week, the 2-10 Year sectors posted the strongest gains with BVAL yields ending 16-23 bps lower than the preceding Friday’s close.  Bonds up to the 1-Year tenor were mostly flat to 9 bps lower on strong volume, while back-end tenors were relatively quiet at just 5 bps lower

BVAL Rates 

What we can expect  

The local bond market may find early support from weaker-than-expected US labor data released on Friday. Expectations for a Federal Reserve (Fed) hike slipped, as US July Non-Farm Payrolls dropped by 23,000 and May and June figures were revised down.

Moving forward, market players will closely watch the US’ July inflation report for additional guidance on the Fed’s near-term policy outlook. Investors will remain wary of geopolitical developments in the Middle East and their implications on energy supply and global inflation.

On domestic supply, bond investors look to the BTr’s auction of the 7-Year FXTN 10-71 at an early indicative range of 7.150% to 7.300%. Bidding participants are expected to take cautious positions in light of last week’s strong rally, and ahead of the aforementioned US inflation print.

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.