It was a choppy week in the peso government securities (GS) market as players grappled with a strong Fixed Rate Treasury Note (FXTN) 7-71 auction combined with US Treasury yields retracing higher.
Initially, the Bureau of the Treasury (BTr) fully awarded PHP 30 billion of FXTN 7-71, setting the coupon of the 7-year bond at 6.125%. The auction’s bid-to-cover ratio was over 3.5x, with tendered bids reaching as high as PHP 107.095 billion. Due to strong demand seen in the auction, the BTr opened the TAP Facility for PHP 5 billion, which had a non-competitive award of 10.121%.
The better-than-expected auction results led to decent buying interest during the early part of the week, with players mostly buying medium- to long-term peso GS.
This relief rally, however, was short lived as risk sentiment turned sour for the latter part of the week due to US Treasury yields retracing higher. The sell-off seen afterwards was more than enough to pare all gains seen early in the week. This led local yields to end higher by around 5-21 basis points (bps) with Retail Treasury Bond (RTB) 3-11 underperforming as it ended the week 21.5 bps higher.
To end the week, newly appointed Department of Finance (DOF) Secretary Ralph Recto also announced that the National Government is targeting to issue an RTB in the first quarter of the year.
Market Levels (week-on-week)
At the beginning of this week, selling activity in the peso GS market persisted following elevated US yields over the weekend and as players trimmed positions on longer-tenor bonds ahead of the 10-year auction today.
The 10-year benchmark, FXTN 10-71 was the most traded bond for the day as it sold off by around 6 basis points (bps) to close the day at 6.285%.
Amid the sell-off in peso bonds, exacerbated by peso weakness vs the dollar, investors also demanded higher yields from yesterday’s T-bill auction as the average awards across the 3- to 12-month tenors were higher by around 4-8 bps.
The newly issued FXTN 10-72 on the other hand was bought at 6.21% or 4 bps lower from its issuance at 6.25%.
Looking ahead, the market’s focus will now be on the upcoming US GDP on Thursday (January 25), as well as the Philippines’ GDP print next week Wednesday (January 31), given that these can provide cues on the pace of the anticipated rate cuts this year.
We continue to advise investors to remain opportunistic in reestablishing core positions in longer-dated bonds through the upcoming auctions and a potential RTB primary issuance next month.
