Market Situationer (28-31 August 2012) by Joboy Quintos

Government Securities
There was strong demand for last week’s 7-year Treasury Bond auction, with total tenders amounting to P24.96 billion for the fully awarded P9.0 billion offer. The new issue fetched a coupon rate of 4.75%, slightly higher than the prevailing PDST-R1 rate of 4.725% the morning prior to the auction. 

Secondary market rates fell by around 4-5 bps last week amidst Governor Tetangco’s statement saying that the flood-driven price pressures are just temporary. Robust 2Q 2012 domestic growth and speculation of QE3 in the U.S. could have also bolstered demand for Peso-denominated assets. FXTN 20-17 fell from 5.66% on Tuesday to a low of 5.6395% on Friday afternoon. 

The slight decrease in long-term GS yields resulted into a marginally flatter yield curve week-on-week, as the difference between 2- and 20-year debt declined to 319 bps from 321 bps. Total weekly volume amounted to P66.608 billion, more than double the previous week’s turnover of P32.306 billion.

Foreign Exchange
Global growth concerns, Dollar demand, and a gradually increasing trade deficit saw the Peso depreciate by P0.18 against the U.S. Dollar in the first two days of trading. The local currency closed at P42.345 (- 0.05) on Tuesday. Despite renewed European debt concerns, strong domestic 2Q 2012 GDP growth enabled the Peso to bounce back in the subsequent days, capping the week at P42.060 (+ 0.17). Total weekly volume for the USD-PHP spot market amounted to $3,183.58 million. 

Stock Market
Local stocks gained throughout most of last week amidst bargain-hunting, robust local economic data, and some month-end window dressing. Despite a 46.41 point drop in the PSEi on Thursday brought about by global growth worries, the main index capped the week at 5,196.19 (+ 46.88), gaining a total of 52.84 points throughout the four-day trading week. Total weekly volume amounted to P20.639 billion.

Rates Forecast
Traders interviewed by Business World saw average rates for this Monday’s Treasury Bill auction falling by 5-10 bps, on “ample liquidity in the system and bullishness among investors” on robust economic data. The 91-, 182-, and 364-day T-Bills last fetched average yields of 1.452% ( - 4.3 bps), 1.671% (- 12.4 bps), and 2.125% (- 22.5 bps), respectively.

Inflation data will be released this Thursday, so expect CPI expectations to dictate the tempo of trading. A Business World poll yielded a median estimate of 3.55%, within the higher end of the 2.8-3.8% BSP outlook this month – higher than July 2012’s 3.2%. 

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