Market Situationer (22-24 August 2012) by Joboy Quintos

Government Securities
Treasury  Bill  rates  again  fell  during  last  Wednesday’s  auction,  amidst  demand  for  short-term  government  securities. Average yields for 91-, 182-, and 364-day T-Bills fetched 1.452% (- 4.3 bps), 1.671% (- 12.4 bps), and 2.125% (- 22.5 bps), respectively. The auction was fully awarded at P7.0 billion. Total tenders amounted to P13.371 billion. 

The 235%  month-on-month  increase  in  the  budget  deficit  (from  P11.70  billion  in  June  to  P39.25  billion  in  July)  compounded expectations of flood-induced inflation pressures. As a result, secondary GS market rates traded sideways with an upward bias. Most of the limited market activity was again focused on the longer tenors, particularly in the 20-year securities. FXTN 20-17 traded between 5.66% and 5.68%, while RTB 20-1 ranged from 5.71%  - 5.7175%  - hardly changed from the closing yields of 17 August. 

Foreign Exchange
The Federal Open Market Committee’s (FOMC) comments that additional monetary stimulus might be needed should the U.S. economy continue to exhibit signs of weakness, bolstered the Philippine Peso. Another round of debt purchases in the US “would entail the printing of dollars that would weaken the U.S currency,” according to the minutes of the FOMC meeting reported in Business World. As a result, the Peso gained P0.31 against the Dollar in the first two days of the abbreviated work week, closing at P42.110 (+ 0.18) on Thursday. Concerns about the measures taken to deal with the European debt crisis and concerns about slowdown in the U.S. and Chinese economies boded ill for the local currency, as it capped the week at P42.165 (-0.055). Total weekly volume amounted to $2,793.61 million.    

Stock Market
The PSEi retreated by 54.66 points to close at 5,152.15 on Wednesday, as local stock prices were negatively affected by worse-than-expected Japanese exports data, according to analysts interviewed by Business World.  The main index rebounded by 50.69 points  (5,202.84) the next day, amidst talk of QE3, but fell by another 59.49 points on Friday on global growth concerns. The PSEi closed the week at 5,143.35 (-59.49). Total weekly volume amounted to P12.15 billion.

Rates Forecast
Expect the coupon rate for next week new, 7-year Treasury Bond issuance (FXTN 7-55) to range from 4.75 – 4.875%. Bids higher than 4.875% might merit a rejection from the Bureau of Treasury. The closest 7-year security in the secondary market last fetched 4.72% on 17 August, with the PDST-F and PDST-R2 yields on 24 Aug at 4.9296% and 4.725%, respectively.

Although there is a sizable RTB maturity on the 24th of September (Php 30 billion), secondary market trading next week will be primarily dictated by the results of the 7-year auction and market expectations of August inflation data (to be released on 5 September). Rates in the secondary market could trade sideways with an upward bias next week.

Sources: Business World, PDEX, Philippine Daily Inquirer, Bloomberg