Macro View

• US President Donald Trump’s recent “tariff tantrum” and ongoing trade policy uncertainty have introduced significant downside risks to the US economic outlook. While the inflationary impact of these tariffs is expected to be temporary, their potential to dampen output and employment could be more persistent. If the economy slows sharply or edges toward recession, policymakers may need to ease interest rates more quickly and deeply than previously anticipated, even if inflation remains above target. In such a scenario, the risk of a broad economic slowdown would likely outweigh concerns about short-term inflation pressure.
• Despite these headwinds, the broader economy began 2025 on relatively stable ground. Modest GDP growth, continued labor market strength, and early signs of cooling inflation—especially in core price measures—suggest a slow but ongoing adjustment toward the 2% inflation goal of the US. However, with trade tensions complicating the policy landscape, the path forward for monetary policy will depend heavily on how businesses, consumers, and global partners respond in the coming months.
• In terms of US dollar fixed income assets, we believe that the 2- to 5-year tenor offers the best risk-reward ratio and is the recommended investment horizon. There may be an opportunity for clients to tactically enter the 10-year tenor given the spread between the 2-year and 10-year bonds. However, caution is still needed when entering at these levels because of the possibility of higher inflation driven by tariffs and the increased risk of investors selling US Treasuries, which have diminished appeal as a safe haven.

• We prefer to remain on the short end of the curve tenor given the increased risks of tariffs. We recommend that clients only position in longer-tenor bonds if there are growing indications that the US Fed will increase rate cuts in response to weaker growth (e.g., consequentially lower non-farm payrolls) in the US. Although US Fed Chair Jerome Powell has been adamant about a wait-and-see approach when assessing the possibility of higher inflation brought on by Trump’s policies, we advise caution regarding longer-duration exposure.
• For sovereigns, we still prefer high quality names such as ROPs, Indons, and KSA within the 5-year tenor bucket. We still remain positive on front-end Indonesian state-owned bonds but remain wary of the long-end of the curve given the execution risks of a mass consolidation of all state-owned enterprises into one holding company (PT Biro Klasifikasi Indonesia (BKI), majorly owned by Danantara. We also favor Philippine corporate issuers such as Bank of the Philippine Islands (BPI), Security Bank, and SM Investments Corp. For Asia IG, we like SK Hynix on the back of strong demand for high bandwidth memory and increased AI penetration.

Peso Bond Strategy 

• We maintain a cautious stance and remain light on peso bond positions amid ongoing geopolitical uncertainty, particularly around Trump’s trade policies, which continue to weigh on sentiment. While domestic inflation has eased to 1.8% in March from 2.1% in February, and the Bangko Sentral ng Pilipinas (BSP) resumed its easing cycle with a 25-basis-point cut on April 10, markets remain highly sensitive to external shocks. Our curve bias remains for a steeper profile, with supply risks expected to pressure the long-end (10–25Y) segment. As such, we favor front-end bonds in the interim and plan to take advantage of upcoming auctions once yields adjust to more attractive levels.
• For a long-term investment strategy, the successful auctions of FXTN 10-73 with its attractive coupon, FXTN 10-69, and FXTN 07-70, all demonstrated strong demand. This suggests continued investor appetite for the belly to back-end tenors of Philippine government securities, supported by low inflation and the possibility of monetary policy easing. Given this preference for the middle to longer portions of the curve, and while global economic uncertainties remain a consideration, the domestic macroeconomic factors support strategic allocations to these tenors. The yields and coupon rates established in these recent auctions provide important benchmarks for evaluating future investment opportunities. Careful monitoring of upcoming announcements of the Bureau of the Treasury and secondary market activity will be essential in identifying optimal entry points across the belly to back-end of the curve.