With lower-than-expected inflation in November and the cancellation of the auctions of the Bureau of the Treasury, we may see more demand for peso bonds at current levels.
We expect yields to continue to trend lower. A reduced borrowing program for December may result in better buying interest.
Given the scarcity of supply in long-term bonds, we recommend loading up on duration in upcoming auctions.
With the lower-than-expected local inflation for October and the renewed appetite for longer tenors, we expect decent interest in the auction today.
The Bangko Sentral ng Pilipinas (BSP) finally announced a 25-basis point (bp) hike on October 26, 2023–its first policy move since March 2023 and amounts to 450 bps in cumulative rate increases since May 2022.
There are still opportunities for bonds with tenors of 5 to 20 years given our view of falling interest rates.
The Bangko Sentral ng Pilipinas’s off-cycle policy rate hike last week pushed back investors, who could be on the defensive for a while given the recent hawkish statements from the BSP.
We advise investors to remain prudent in bidding too aggressively in the secondary market and instead take advantage of the treasury’s upcoming auctions.
The Treasury seems to be willing to accept bids at higher levels. With yields hovering at the year’s highs, it may be time to take action.
Given the flatness of the peso yield curve and upward pressure on longer-term yields from supply risk with the upcoming auctions this October, we see good value in short-term bonds.
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