It was a quiet start in the peso government securities (GS) market last week, with activity driven mostly by buying interest in 4- to 6-year bonds given that longer-term GS currently do not offer much term premium over this tenor bucket.
The November domestic inflation print came out slightly lower-than-expected at 4.1% year-on-year vs. the 4.3% median estimate, which triggered some immediate buying in the 10-year space.
The Bureau of the Treasury (BTr) then fully awarded the reissuance of 10-year Fixed Rate Treasury Note (FXTN) 10-71 at an average of 6.224% and a high of 6.244%, or just well within market expectations. The relatively tepid auction reception, which was only 2x oversubscribed, failed to boost the market’s appetite and led to some profit-taking in longer-dated securities.
The BTr then announced that it will be cancelling all the remaining auctions for the year, which include the 15-year and Treasury Bill (T-bill) auctions as they have already raised enough funds to complete their domestic funding requirements for 2023.
This development coupled with the drop in global yields amid falling oil prices prompted better buying interest with strong preference on longer-tenored securities. FXTN 20-23 (15Y) was taken down to a low of 6.20%, while 10-year bonds were seen trading near the 6.075% area.
To end the week, profit-taking activity eventually emerged, which led most yields to close 2-8 basis points (bps) lower week-on-week (WoW), with the exception of 3-month bonds, which ended 37.5 bps higher WoW.
Given the absence of fresh catalysts in the local front, movements in the GS space will continue to take cues from developments in the global bonds market. Investors now await the Bangko Sentral ng Pilipinas’ (BSP) policy rate decision on Thursday, where the central bank is expected to hold key rates unchanged amid slowing inflation.
The absence of supply risk until year-end is likely to be supportive of GS in the medium-term. However, we advise against aggressively loading up at current levels as we expect to see further profit-taking from tactical traders if we do see another leg lower in yields.
Tactical investors may consider taking profit on their GS positions to lock in gains. We recommend staying opportunistic in picking up longer-term bonds at current levels.
