Risk sentiment was fragile at the start of last week, primarily on growing geopolitical uncertainty and elevated oil prices that revived inflation concerns. Cautious investors traded mostly in the 3- to 4-year sectors, as the USD/PHP pair hit a fresh all-time-high 62.875 on Monday. Weak sentiment was also evident in the Treasury Bill auctions, where yields were higher by 11 to 16 basis points (bps) from the prior week, and bid-to-cover ratios at around 1.4 to 2.1 times.
Investors remained on the sidelines on Tuesday, leading to a lackluster session as the USD/PHP advanced further to a fresh peak of 62.925. Amid the prevailing risk-off backdrop, the Bureau of the Treasury (BTr) opted to reject all bids for the FXTN 7-70 (4Y) re-issuance, where the average yield would have settled at a 7.435% average with highs at 7.600%. Meanwhile, the 10-74 (10Y) was partially awarded at an average of 7.525%, with auction yields capped at 7.550%.
Secondary market trading eventually pulled 7-70 yields lower, though selling activity spread across the 2- to 8-year sectors. Overall, yields across the curve ended within 5 bps by the end of the session.
Light supply in the belly led to better bond prices on Wednesday, aided by the peso’s recovery. Early trades favored the 3- to 5-year sectors, with the rally gaining further traction after the BTr announced the cancellation of a new 5-Year FXTN issuance originally scheduled for September 22. Late-session profit taking pared some of the earlier gains to just 2.5 to 9.5 basis points lower, as investors positioned ahead of the US Federal Reserve (Fed)’s policy rate announcement.
As headlines broke of a 25-bp Fed hike and hawkish guidance early on Thursday, local bonds turned defensive on dollar strength before finding support as the USD/PHP pair retreated. FXTN 7-70 (4Y) continued to trade tightly in the absence of fresh supply, while the 3- and 7-year tenors underperformed at 8 to 12 bps higher on the day, respectively.
Local Government Securities (GS) recovered slightly ahead of the weekend, as crude oil prices eased on renewed hopes for a diplomatic resolution to the conflict. The rally was initially concentrated in the belly, though selling interest later emerged in 20-17 (5Y), as the BTr announced its reissuance next week, in lieu of the cancelled new issuance. Selling activity spilled over into nearby belly tenors, though overall yields ended 2 to 9.5 basis points lower on close.
Week-on-week, the BVAL curve rose between 5 to 51 basis points, with the 5-Year tenor outperforming on lighter supply. Meanwhile, the back-end of the yield curve rose sharply, as expectations of continued central bank tightening reduced investors’ appetite for duration risk.
This week, headlines in the Middle East and oil price movements will continue to be the key driver for market sentiment. With reports of growing energy transit and supply risks, bond investors are expected to remain cautious until energy supply concerns are clearly addressed. Elsewhere, global manufacturing data may offer a first look at business activity following the latest Fed rate hike, and US jobs data will provide cues on the sustainability of further tightening.
On bond supply, GS investors look to this week’s FXTN 20-17 (5Y) auction for fresh bond supply. The BTr’s awarding behavior and preferred levels will be on close watch, following their recent rejection of all 4-Year auction bids and cancellation of the original planned jumbo 5-year issuance. Early yield indications for the re-issuance are at 7.250% to 7.400%.
Note: Rates are indicative and subject to refresh.
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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.
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.
