Sunday, May 27, 2012

Market Situationer (21-25 May 2012)

Government Securities
The Bureau of Treasury (BTr) rejected all the bids for last Tuesday’s 15-year bond sale, as the market submitted relatively higher bids. Had the BTr awarded the re-issued paper in full, rates would have risen to 6.0825%, significantly higher than the 15-year PDST-R2 of 5.7545%. Market players posted high bids in light of the paper’s illiquid nature and persistent Euro zone fears, despite the release of a record-high budget surplus the day before. Total tenders totaled P7.56 billion.

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Secondary market yields reached its highest levels in about a month’s time last Monday. FXTN 20-17, with a tenor of 19-years and the most liquid security, traded at 6.10%. The market seemed to ignore the release of the fiscal data on Monday afternoon, as yields failed to react. The next day, however, secondary market rates inched lower, as the BTr rejected the high bids in the 15-year auction. FXTN 20-17 fell to 5.975%, while FXTN 25-8 dropped to 6.15% (from 6.25% the previous week).

However, rates crept up towards the end of the week. FXTN 20-17 capped the week at 6.03%. FXTN 25-8 rose to 6.225%. Week-on-week, the steepness of the yield curve remained unchanged. The difference between 2- and 20-year debt amounted to 320 bps.

Foreign Exchange 
The USD-PHP exchange rate closed at P43.74 (- 0.30) on Thursday, from P43.21 (+ 0.04) on Monday, as the world markets mulled a Greek exit from the Euro. Furthermore, worse-than-expected manufacturing data from Europe and China stoked risk aversion, and contributed to the strength of the so-called “safe haven” assets like the U.S. Dollar, Japanese Yen and German Bunds. Total weekly volume for the USD-PHP spot market amounted to $4,532.43 million.

Stock Market
The stock market was just as battered as the Philippine Peso. The PSEi threatened to go below the 4,900 point support level, as it closed at 4,904.22 (-24.31) on Thursday afternoon. Total weekly volume of trades for stocks in the main index amounted to P24.69 billion.   

Rates Forecast
Don’t expect any major movements in Treasury Bill auction rates. A rejection is a strong possibility, should market players continue to submit bids deemed too high by the BTr.

Developments in Europe could influence market sentiment to some degree. Local economic data would have a relatively stronger effect on yield direction. GDP data will be released this week. Growth in the agricultural sector (due to the absence of adverse natural calamities) and the services sector could outweigh the deceleration of export figures. It is highly probable that the Philippines achieved faster growth in 1Q2012 than in 4Q2011 (3.7%). Higher GDP growth rates would validate the Monetary Board’s current policy stance. A rate cut (which some market players expect) towards the end of the year would seem unlikely. Secondary market yields, in the near term, could inch upward as expectations of further monetary policy easing take a back seat.


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