The Peso Government Securities (GS) market was dominated by developments around domestic inflation and foreign-exchange movements. Local bond yields surged toward multi-year highs across the curve before bargain-hunting and offshore sentiment brought modest reprieve. Overall, trading activity remained brisk, as investors actively repositioned portfolios amid uncertainty over policy and interest rate.
The week began quietly on Monday, as market participants largely remained on the sidelines ahead of release of the September inflation data and conclusion of the recent Retail Treasury Bond (RTB) offering. Light selling emerged across front-to-belly tenors, as market players raised liquidity for primary commitments, while seven- to nine-year papers traded near 7.650%. In the Treasury bill auction, average rates were around 10 to 13 basis points (bps) higher than the previous auction despite moderate demand.
On Tuesday, selling followed the release of September headline inflation, which showed consumer price rise quickening from the previous month. Benchmark papers sold off immediately, with the eight- to ten-year sector taking the brunt, as FXTN 10-73 and 10-74 surged 15 to 20 bps to 7.850% and 7.800%.
Bearish momentum intensified midweek, as currency depreciation pushed the peso toward record lows, prompting dealers to de-risk holdings ahead of settlement. On Thursday, aggressive offshore and local selling forced 10-73 and 10-74 past key psychological levels to multi-year highs of 8.100% and 8.170%, respectively. However, some investors buying at those elevated peaks was observed, while belly paper FXTN 20-17 underperformed sharply, closing 20 bps higher at 7.700%.
On Friday, the market found brief reprieve, tracking lower US Treasury yields after geopolitical developments eased near-term anxieties. End-user demand drove 10-74 to an intraday low of 7.750%, but the rally quickly fizzled, as market participants de-risked portfolios ahead of the weekend.
Meanwhile, the Bureau of the Treasury announced raising PHP 167.25 billion in new money for RTB 02-01, comfortably exceeding its initial PHP 150 billion target.
Week-on-week, the Philippine yield curve steepened dramatically, as inflation concerns and heavy supply of long-term bonds battered longer-dated securities. While front-end and belly tenors rose between 19 and 25 bps, the extreme long end experienced an outsized selloff, with 20-year and 25-year BVAL yields jumping by over 70 bps each to cross 8.200%. The sharp move highlighted growing investor caution regarding elevated inflation risks and upcoming bond supply.
Looking ahead, market participants will closely track the secondary trading performance of RTB 02-01 as it reprices to align with comparable secondary benchmark yields. Market attention will also turn to the resumption of regular auctions, where the Bureau of the Treasury will offer FXTN 7-70 (4Y) and FXTN 25-12 (25Y) amid cautious bidding appetite.
Meanwhile, sentiment will remain decidedly defensive leading up to the Bangko Sentral ng Pilipinas’ upcoming October 22 policy meeting. With central bank Governor Eli Remolona highlighting El Niño risks and persistent food price shocks, market participants anticipate a hawkish tone, keeping benchmark yields elevated, as investors demand higher concession premiums across tenors.
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.
MATTHEW A. APOSTOL is an Investment Counselor with Metrobank’s Institutional Investors Coverage Division, where he specializes in creating bespoke financial solutions for high-net-worth individuals, leveraging his experience in investment sales and a strong understanding of financial markets. Matthew holds a Bachelor of Science in Business Economics. He enjoys playing tennis and coaching new tennis players.
