Market Situationer (3-7 September 2012) by Joboy Quintos

Government Securities

The Bureau of Treasury chose to grant a full award of last week’s Treasury Bill auction, despite higher yields in the 182- and 364-day tenors. The 91-day T-Bills fetched an average of 1.249% (- 20.3 bps), as 182- and 364-day papers yielded 1.713% (+ 4.2 bps) and 2.22% (+ 27 bps), respectively. Total tenders soared to a total of P18.72 billion. 

Expectations of monetary policy easing in the United States and in the European Union overshadowed local inflation concerns. Higher-than-expected 3.8% inflation for the month of August failed to dampen the market’s mood, as secondary market yields continued to fall despite some knee-jerk selling. The ECB’s announcement of an “unlimited bond-buying” regime for tenors up to 3 years on Thursday did much to prop up the confidence of the market. 

Throughout last week, yields fell by an average of 8-15 bps, with market players favoring 5-, 10- and 20-year securities. There was renewed interest on FXTNs at the belly of the yield curve, in light of the higher inflation expectations in the near-term. FXTN 20-17 fell from 5.62% at the start of the week to 5.525% by Friday morning. The 5- and 10-year FXTNs, meanwhile, shed 15 bps and 11 bps, respectively.

The yield curve became flatter as a result of the decline in yields. The difference between 2- and 20-year debt fell to 311 bps last Friday from 318 bps the week earlier. Total weekly volume reached P171.74 billion.

Foreign Exchange

The Peso gained a total of P0.38 throughout the entire week, amidst expectations of monetary stimulus in the Eurozone and in the United States. From P41.98 (+ 0.08) on Monday, the local currency capped the week at P41.38 (+ 0.19). Total weekly volume for the USD-PHP spot market amounted to $4,119.84 million.

Stock Market

Despite finishing in the red at the early parts of the week due to Moody’s downgrade of the EU credit outlook, the PSEi managed to eke out a modest weekly gain of 5.13 points.  From a weekly low of 5,150.81 (-25.06) on Wednesday, the main index closed the week at 5,201.32 (+ 51.21). Total weekly volume amounted to P21.37 billion.

Rates Forecast

Traders interviewed by Business World saw the coupon rate for this Tuesday’s new 10-year issue to range from 4.75% to 4.875%.  In the secondary market last week, 10-year papers were trading at 4.715%.  Near-term inflation pressures brought about by domestic and foreign factors could result into marginally higher yields in the auction.

Despite prospects of bond buying in Europe and in the U.S, another rate by the Monetary Board seem less likely in light of the aforesaid inflation uptick brought about by the recent floods.   

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