• Macro View
  • Global macro conditions in the first half 2024 were much more benign compared to 2023. The scaling back of US rate cut expectations which led to an increase in US Treasury (UST) yields was the main risk flare in bonds last quarter. Now with the disinflation trend back on track, global risk assets continue to price in a “Goldilocks” scenario.  While the UST curve is still inverted, we believe an overweight allocation on the 5-year tenor and shorter is the ideal spot to find value. While 6- to 8-year bonds may warrant some curve diversity in investors’ bond portfolios, we are more cautious on 10 years and longer. We prefer to enter duration with a more tactical approach. If and when the US Federal Reserve starts its easing cycle, expect the front-end to reprice faster than the back-end of yield curves.
  USD bonds approach
  • Given the tightening of credit spreads this year, we recommend staying close to quality Investment Grade (IG) credit (Sovereigns and Corporate bonds), with a skew towards Southeast Asian names, such as Pertamina, Perusahaan Listrik Negara (PLN), Pelabuhan Indonesia, and Indonesia Asahan Aluminium (IDASAL). These are core Indonesian state-owned enterprises which have implicit government support and belong to strategic and defensive sectors. We also like short-dated Philippine quality names such as Bank of the Philippine Islands (BPI), Filinvest, and International Container Terminal Services, Inc. (ICTSI). Staying with short dates gives some protection from rates volatility.
  • Investors may not be compensated for the risk in sub-investment grade given the rally this year in the high yield sector. In terms of curve and duration, we still like 1– to 5–year Asia IG credits with the 5.375% to 5.875 % yield targets. The relatively moderate issuance of new bonds in this space will keep this sector supported and provide some outperformance in the event of another large rates move. New issues this year will continue to perform given the high coupons as investors tend to hold these bonds for longer. The market expects net new issues to remain negative (i.e., more bond redemptions vs. new issuance).  

PHP bonds approach

• Given the shape of the peso government securities (GS) yield curve (steep to normal compared to the USD curve) and consensus dovish view on local rates, we believe bonds in the 4- to 7-year area have the most value (6.15% to 6.25% gross yield). For clients looking to hold to maturity for much longer tenors, we like to accumulate 10- to 20-year bonds through the upcoming Bureau of Treasury (BTr) auctions, albeit at lower yields of 6.25% to 6.35% gross yields.
• We are also constructive on Philippine companies on selective names for the extra pick up in yield over the government benchmark bonds. We like the 2- to 5-year bonds (6.3% to 7% gross yield) of Robinsons Land Corp., SM Prime Holdings, Ayala Land Inc., and Maynilad. We are selective on property names, specifically those that have a strong exposure to retail since household consumption is expected to continue supporting the Philippine economy. Maynilad is a defensive utilities name that continues to be the exclusive water services provider for the West Zone of the Greater Metro Manila area.