Government Securities
Expectations of a cut in benchmark interest rates drove down bids for last week’s Treasury Bill auction. The 91-, 182-, and 364-day bills fetched average yields of 1.80% (- 20.8 bps), 2.117% (- 5.5 bps), and 2.279% (- 20.9 bps), respectively. Total tenders for the fully awarded P7.5 billion offer amounted to P20.69 billion, the largest volume of bids this year.
Secondary market yields fell all throughout the week, as market players priced in a cut in the policy rates and negligible budget deficit. FXTN 20-17 dropped 7.5 bps to hit a low of 5.485% on Wednesday, as RTB 20-1 bottomed at 5.5357% from 5.625% at the start of the week. Likewise, the 10-year FXTN 10-54 retreated by 8.5 bps to close the week at 4.85%. The market’s expectations were confirmed on Thursday, as the Monetary Board cut benchmark rates by 25 bps and the June 2012 budget deficit remained manageable at P11.96 billion.
Expectations of a cut in benchmark interest rates drove down bids for last week’s Treasury Bill auction. The 91-, 182-, and 364-day bills fetched average yields of 1.80% (- 20.8 bps), 2.117% (- 5.5 bps), and 2.279% (- 20.9 bps), respectively. Total tenders for the fully awarded P7.5 billion offer amounted to P20.69 billion, the largest volume of bids this year.
Secondary market yields fell all throughout the week, as market players priced in a cut in the policy rates and negligible budget deficit. FXTN 20-17 dropped 7.5 bps to hit a low of 5.485% on Wednesday, as RTB 20-1 bottomed at 5.5357% from 5.625% at the start of the week. Likewise, the 10-year FXTN 10-54 retreated by 8.5 bps to close the week at 4.85%. The market’s expectations were confirmed on Thursday, as the Monetary Board cut benchmark rates by 25 bps and the June 2012 budget deficit remained manageable at P11.96 billion.
The rate cut resulted in a slightly higher shorter end, resulting into a relatively steeper yield curve compared to a week before. The difference between 2- and 20-year debt on 27 July amounted to 293 bps, marginally higher than the 290 bps on 20 July. Total weekly volume for the secondary GS market amounted to P175 billion.
Foreign Exchange
The Peso traded on the weaker side against the U.S. Dollar throughout most of the week, as expectations of a rate cut made Peso-denominated assets less attractive for foreign funds. The local currency lost a total of P0.325 in the first three days of trading, closing at P42.185 (-0.14) on Wednesday. A statement by the ECB pledging strong support for the Euro buoyed market sentiment towards the end of the week, despite the 25 bps cut in benchmark policy rates. As a result, the Peso closed at P41.90 (+0.195) on Friday. Total weekly volume for the USD/PHP spot market amounted to $4,534.64 million.
Stock Market
Talk that Spain might require a bailout soured the market’s mood on Monday, resulting in a 71.49 point drop in the PSEi. The main index closed at 5,139.40 on Monday, before rebounding 22.30 points in the next two days as local stock prices were buoyed by rate cut expectations. The PSEi gained 66.99 points on Friday on the encouraging ECB statement, capping the week higher at 5,219.55. Total weekly volume amounted to P26.24 billion.
Rates Forecast
The BTr will issue a new tranche of 10-year bonds on Tuesday. In light of tame inflation expectations and negligible budget data, as well as the upcoming P33 billion in Treasury Bond maturities, rates for the auction could head south. Expect the coupon rate to range from 4.625% to 4.75%, lower than the 4.85% in the secondary market.
Foreign Exchange
The Peso traded on the weaker side against the U.S. Dollar throughout most of the week, as expectations of a rate cut made Peso-denominated assets less attractive for foreign funds. The local currency lost a total of P0.325 in the first three days of trading, closing at P42.185 (-0.14) on Wednesday. A statement by the ECB pledging strong support for the Euro buoyed market sentiment towards the end of the week, despite the 25 bps cut in benchmark policy rates. As a result, the Peso closed at P41.90 (+0.195) on Friday. Total weekly volume for the USD/PHP spot market amounted to $4,534.64 million.
Stock Market
Talk that Spain might require a bailout soured the market’s mood on Monday, resulting in a 71.49 point drop in the PSEi. The main index closed at 5,139.40 on Monday, before rebounding 22.30 points in the next two days as local stock prices were buoyed by rate cut expectations. The PSEi gained 66.99 points on Friday on the encouraging ECB statement, capping the week higher at 5,219.55. Total weekly volume amounted to P26.24 billion.
Rates Forecast
The BTr will issue a new tranche of 10-year bonds on Tuesday. In light of tame inflation expectations and negligible budget data, as well as the upcoming P33 billion in Treasury Bond maturities, rates for the auction could head south. Expect the coupon rate to range from 4.625% to 4.75%, lower than the 4.85% in the secondary market.
Sources: Business World, PDEX, Philippine Daily Inquirer,
Bloomberg
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