Peso GS Weekly: Muted demand ahead of the holidays

WHAT HAPPENED LAST WEEK

The week started out on a quiet note as yields of peso government securities (GS) mostly took cues from the global market due to the lack of local catalysts to drive the movement of yields either way. Risk appetite in the GS space was mostly subdued as investors and dealers remained wary ahead of the key interest rate decision from both the US Fed and the Bangko Sentral ng Pilipinas (BSP).

Come Thursday, buying interest dominated the local GS market throughout the day as dovish comments from US Fed Chairman Jerome Powell pushed US Treasury yields lower. Later in the day, the BSP also kept the key rate unchanged at 6.50%, pushing renewed risk-taking or buying in the local GS market.

The buying momentum was especially evident in medium- to long-dated securities where yields dropped by around 10-25 basis points (bps) as players started to load up on long-term GS. Fixed Rate Treasury Note (FXTN) 20-23 outperformed as the 15-year bond pushed lower by 25 bps to close the week at 6.100%.

To end the week, BSP Governor Eli Remolona said the BSP “remains hawkish for the time being”, leading to an end to the buying momentum seen the previous day.

Market Levels (week-on-week)

WHAT WE CAN EXPECT

To start the week, offshore bond investors sold short-dated government securities (GS) as the USD/PHP exchange rate tracked a broad dollar recovery in global FX and traded at a higher range of 55.76-55.875. Overall, GS yields ended yesterday higher by around 5-10 basis bps.

As we head towards the holiday season, we expect trading interest to slowly fade in the coming days. We recommend staying opportunistic with target entry levels for the time being. We expect market participants to take cues from movements in the global bond market.

GERALDINE WAMBANGCO is a Financial Markets Analyst at the Institutional Investors Coverage Division, Financial Markets Sector, at Metrobank. She provides research and investment insights to high-net-worth clients. She is also a recent graduate of the bank’s Financial Markets Sector Training Program (FMSTP). She holds a Master’s in Industrial Economics (cum laude) from the University of Asia and the Pacific (UA&P). She takes a liking to history, astronomy, and Korean pop music.