Market Situationer (10-14 September 2012) by Joboy Quintos

Government Securities
Yields for last Tuesday’s 10-year Treasury Bond auction stayed within market expectations. The new issue fetched a coupon rate of 4.75%, with the Bureau of Treasury awarding the full P9.0 billion allocation. Total tenders amounted to P44.155 billion, the largest since January 2012. A liquid market and expectations of monetary stimulus abroad fueled the strong demand.

Market players continued to buy securities at the 7- to 10-year tenors, in anticipation of the upcoming bond swap in the fourth quarter of the year. The BTr is set to issue new 5-, 7-, 10-, 15-, 20-, and 25-year tenors in huge amounts (total of at least P300 billion). Doing so would create liquidity in the aforesaid tenors. Since the 7- to 10-year tenors have seen little movement the past months, proprietary traders have realized value in these securities.

The 20-year FXTN 20-17 traded sideways with an upward bias, trading at 5.565% to 5.615% the entire week. The 10-year FXTNs, fell by 8 bps, on average, as 7-year papers dipped by 7 bps. There were hardly any surprises in terms of policy moves last week, as the Monetary Board kept benchmark rates unchanged and revised the 2012 and 2013 inflation forecasts higher – but still within the 3-5% target.

In light of the renewed market interest in the aforesaid tenors, the yield curve was flatter when comparing 2- and 10-year debt (224 bps from 232 bps) and 5- and 10-year securities (0.364 bps from 0.495 bps). Total weekly volume for the secondary GS market amounted to P122.16 billion.

Foreign Exchange
Monetary easing in Europe and in the United States bolstered emerging market currencies and assets. The prospect of lower interest rates in the developed world makes higher-yielding emerging market a more attractive destination for capital flows. Hence, the Peso reached consecutive 4-year highs last week against the U.S. Dollar. The local currency capped the week at P41.42 (+ 0.33) versus the greenback, gaining a total of P0.26 in five days of trading. Total weekly volume for the USD-PHP spot market amounted to $4,506.05 million.

Stock Market
Likewise, the local equities market benefited from the developments abroad. The PSEi surged by a total of 121.15 points last week, closing at 5,322.47 (+ 81.97) on Friday. Total weekly volume amounted to P27.33 billion.

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

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

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

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

Market Situationer (13-17 August 2012) by Joboy Quintos

Government Securities
Last week’s 91- and 182- day T-Bill average yields fell amidst strong demand in the auction, as investors looked for “short-term investments where they can temporarily park their funds,” according to the National Treasurer. Average yields for the 91- and 182-day bills fetched 1.495% (- 30.5 bps) and 1.795% (- 32.2 bps), while 364-day bills dropped 14.3 bps to 2.422%. Total tenders for the partially awarded auction amounted to P21.30 billion. The BTr capped the awards for 364-day bills at P3.6 billion, as it issued a total of P7.1 billion worth of short-term debt out of the P7.5 billion offer.

With the workweek cut short by the monsoon rains and metro-wide flooding, trading volumes were relatively light the entire week. News of higher inflation in July 2012 and price-driven pressures brought about the massive flooding dampened the market’s mood, resulting into a gradual climb in secondary market rates towards the end of the week. Yields for the 19-year FXTN 20-17 rose to 5.60% from 5.535% at the start of the week. Likewise, the 20-year RTB 20-1 gained 8 bps to cap the week at 5.675%.

Higher long-term GS yields resulted in a steeper yield curve, as the difference between 2- and 20-year debt increased to 309 bps from 300 bps the week earlier. Trading volume for the week fell to P44,716.11 million from P109,787.83 million.

Foreign Exchange
With financial markets closed on Tuesday, market players sold some of their accumulated U.S. Dollar positions, resulting in a P0.065 appreciation for the Peso (P41.77). The local currency capped the week marginally weaker against the Dollar, as slower-than-expected Chinese exports growth stoked risk aversion (P41.885 -0.125). Total weekly volume for the USD-PHP spot market amounted to $2,945.66 million.

Stock Market
The PSEi surrendered 52.06 points (5,256.61) on Thursday, on “sluggish trading” and the perceived negative effects of the monsoon-induced flooding. The main index closed the week at 5,263.35 (+ 6.74). Total weekly volume amounted to P20.59 billion.

Rates Forecast
The coupon rate for next Tuesday’s 25-year Treasury Bond could range from 5.75% - 5.875%, as yields react to renewed inflation concerns. Last Friday’s 25-year PDST-R2 stood at 5.80%. Demand for the long dated paper is expected to be large, since most of the market appetite is centered on the longer end of the curve.

Expect the secondary market to trade sideways with an upward bias, should inflation worries over the near-term prevail.

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

Market Situationer (13-17 August 2012) by Joboy Quintos

Government Securities
The newly issued 25-year FXTN fetched a coupon rate of 5.75% last Tuesday, which fell at the lower end of the market projections. Total tenders for the fully awarded P9.0 billion offer amounted to P26.26 billion.

Secondary market rates, particularly the longer dated securities, rose at the early parts of the week due to higher inflation expectations brought about by the recent flooding. FXTN 20-17 and RTB 20-1 peaked at 5.67% and 5.75%, respectively. The 20-year GS rose by an average of 10 bps from the closing rates on 10 August. The auction results and BSP statements that 2012 inflation would fall well within the 3-5% target somehow eased the selling pressure. As a result, rates for FXTN 20-17 dipped to 5.5925%, while RTB 20-1 fell to 5.65%.

Towards the end of the week, however, trading volumes thinned as the market approached the so-called “ghost month.” In addition, better than expected U.S. retail sales and housing permits resulted in a sharp increase in longer-dated U.S. Treasuries. Hence, demand for riskier assets like Peso-denominated securities declined, as shown by the P0.405 depreciation of the local currency against the U.S. Dollar. FXTN 20-17 closed the week at 5.685%, while RTB 20-1 ended the week at 5.72%.

The difference between 2- and 20-year debt rose to 318 bps from 309 bps the previous week. Higher rates in the longer end of the curve resulted into a steeper yield curve. Total weekly volume amounted to P74.16 billion, up from P31.706 billion.

Foreign Exchange
The U.S. Dollar strengthened against the Peso the entire week as the U.S. economy exhibited signs of recovery (higher-than-expected retail sales and housing permits). A stronger U.S. economy makes the prospect of another round of quantitative easing less likely. From P41.930 (-0.045) on Monday, the Peso capped the week at P42.42, depreciating by a total of P0.535 against the Dollar. Total weekly volume for the USD-PHP spot market amounted to $4,456.65 million.

Stock Market
The PSEi traded sideways with an upward bias in the first three days of trading, amidst an absence of major leads. The main index closed at 5,266.66 (+0.72) on Wednesday, before surrendering -47.15 points the next day (5,219.51) as market players cashed in profits ahead of the four-day weekend. The PSEi capped the week at 5,206.81. Total weekly volume of trades amounted to P21.06 billion.

Rates Forecast
Market players could again flock to the safety of shorter term Treasury Bills. However, foreign funds might shun Peso-denominated securities amidst the relatively higher U.S. Treasury rates and the recovery signs shown by the U.S. economy. Average yields for the Treasury Bill auction on Wednesday could move sideways with an upward bias, as a result. The 91-, 182-, and 364-day T-Bills last fetched average yields of 1.495% (- 30 bps), 1.795% (+ 32.2 bps), and 2.422% (+ 14.3 bps), respectively.

The bearish sentiment in local GS market might persist in the near-term.

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

Market Situationer (23-27 July 2012)

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.

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.

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

Market Situationer (16-20 July 2012)

Government Securities
Yields for last Tuesday’s 7-year Treasury Bond auction fetched a coupon rate of 4.75%, within market expectations. Total tenders amounted to P20.951 billion for the fully awarded P9.0 billion offer.

Secondary GS yields fell throughout most of last week, amidst the absence of any upward pressures in domestic interest rates. Buying interest was stoked by expectations of negligible fiscal deficit, next week’s Monetary Board meeting, and to some extent, hopes of further monetary easing by the U.S. Fed. Yields for FXTN 20-17 dove to 5.555% on Friday afternoon, down 7 bps from Monday’s levels. Likewise, FXTN 25-8 bottomed at 5.725% from 5.80% on Monday. The 10-year FTXN’s also saw relatively higher volumes, as rates for these papers fell below 5.0% for the first time in four months.

The difference between 2- and 20-year debt declined to 290 bps from 298 bps a week earlier, as the longer end of the curve shifted downwards. This is the flattest the yield curve had been since March 2012. Total weekly volume amounted to P172 billion.

Foreign Exchange
Stimulus hopes from China and the U.S. fanned risk appetite. The Peso appreciated by P0.30 against the U.S. Dollar in the first three days of trading. The local currency closed at P41.68 (+0.045) on Wednesday, matching its highest level against the Dollar this year. It closed the week at P41.860 ( -0.105). Total weekly volume for the USD-PHP spot market amounted to $4,401.18 million.

Stock Market
After gaining 83.47 points on Monday (5,297.99) on stimulus news, the PSEi shed 108.62 points in the next three days, amidst lower economic growth forecasts by the IMF and disappointing retail sales data in the U.S. The main index rebounded by 21.52 points on Friday, to cap the week at 5,210.89. Total weekly volume amounted to P31.72 billion. 

 

Rates Forecast
Expect yields for this Monday’s Treasury Bill auction to fall by 5 to 10 bps, as it aligns with the lower secondary market yields. The 91-, 182-, and 364-day bills last fetched 2.008%, 2.172% and 2.488%, respectively, in the secondary market.

The Monetary Board will meet on Thursday, coinciding with the release of the budget data. Downward momentum might continue prior to the 26th of July, especially if foreign news turn out to be conducive for speculative flows into the local markets.

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

Market Situationer (9-13 July 2012)

Government Securities
The Bureau of Treasury made a partial award of last Monday’s Treasury Bill auction. Average yields for the 91-, 182- and 364-day bills were at 2.008% (- 16.6 bps), 2.172% (- 10.2 bps), and 2.488% (+ 3.8 bps), respectively. The rates fell amidst benign inflation data and S&P’s credit upgrade the previous week. The BTr put a cap on the bids for the year papers, as it accepted only P3.2 billion out of the P4.0 billion offer. Total tenders amounted to P13.755 billion.

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Secondary market rates inched upward during the early parts of last week. Yields again dove in the last two days of trading, as news of BIR’s larger June 2012 collections and the BSP’s slashing of the SDA rates by 3.25 bps drove up demand for long-term government securities. FXTN 20-17 fell from a weekly high of 5.7725% to 5.6575% on Friday. RTB 20-1, meanwhile, dropped from 5.86% to 5.75%.

Market Situationer (2-6 July 2012)

Government Securities

The Bureau of Treasury awarded last Tuesday’s Treasury Bond auction in full. The newly issued 5-year paper fetched a coupon rate of 4.625%, a bit lower than the prevailing secondary market rate for outstanding securities of the same tenor. Total tenders for the fully awarded P9.0 billion offer amounted to P28.049 billion.

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Secondary market yields dropped dramatically last week, as (1) S&P upgraded the Philippines’ sovereign debt rating to BB+, (2) expectations of tame June 2012 inflation, (3) signals of monetary easing by Chinese and European policy makers. GS market rates fell to its lowest levels in four months, as both domestic and foreign financial institutions went on a buying spree. Yields for FXTN 20-17 hit a low of 5.59% on Thursday morning, down from a high of 5.8695% on Monday. Likewise, the 25-year FXTN 25-8 shed 35 bps to trade at 5.70% as 10-year papers fell by an average of 10 bps. 

Market Situationer (25-29 June 2012)

Government Securities
The Bureau of Treasury awarded last week’s Treasury Bill auction in part, as it rejected all bids of the 91-day tenor. Had the BTr made a full award of the three-month papers, yields would have risen to 2.895%, up 72.1 bps from the previous auction. The 182- and 364-day T-Bills fetched average yields of 2.274% (- 2.6 bps) and 2.45% (- 5 bps), respectively. Total tenders for the P7.5 billion offer amounted to P10.663 billion. The BTr raised P5.5 billion in short-term debt.

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Secondary market yields fell marginally due to half-year window dressing. The (1) release of negligible budget deficit data, despite accelerated government spending, and (2) the smaller volume of 20- and 25-year in the BTr’s 3Q 2012 borrowing program spurred demand, as well. FXTN 20-17 shed 4.5 bps to hit a low of 5.88% on Friday morning, while FXTN 25-8 dipped 8.5 bps to 6.10%. 

Market Situationer (18-22 June 2012)

Government Securities
The Bureau of Treasury awarded last Tuesday’s 20-year Treasury Bond re-issue in part. The BTr chose the 6.09% ceiling in accepted bids. This level approximates the 6.0904% PDST-F rate in the market, a collection of firm bid rates from the major market making banks. The re-issued FXTN 20-18 fetched an average yield of 6.024%, slightly higher than the 5.94% in the secondary market. Total tenders for the partially awarded debt sale amounted to P14.098 billion. The BTr issued P6.65 billion out of the P7.5 billion offer.

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The successful election of pro-bailout Greek parties, as well as expectations of additional stimulus by the Fed, improved market sentiment. Local GS bond yields were slow to react, but momentum built up by mid-week. The big, local players went on a buying frenzy on Wednesday morning, probably due to 1H 2012 window-dressing.Yields for FXTN 20-17 shed 9 bps to reach a low of 5.88% on Wednesday morning. The 10-year FXTN 10-55 and the 24-year FXTN 25-8 each dipped by around 5 bps, amidst surprisingly robust trading volumes. The P37.66 billion worth of secondary market GS trades on 20 June (Wednesday) is the largest single day tally since March 2012.

Market Situationer (11-15 June 2012)

Government Securities
The Bureau of Treasury (BTr) rejected all the bids for the Treasury Bill auction last Monday. Again, market interest was on the longer end of the curve. Total tenders for the P7.5 billion offer amounted to only P6.51 billion, the lowest tally of bids this quarter. Out of the programmed P52.50 billion in T-Bill borrowings this quarter, the BTr has issued only P22.90 billion.

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Local GS yields inched lower on Monday, on news of a $125 billion credit line to Spanish banks and indications of lower third quarter local borrowings by the BTr. Secondary market rates climbed gradually in the coming days. Foreign news contributed to the somewhat dour local market sentiment, amidst (1) Moody’s credit downgrades of Spain and Cyprus, (2) the upcoming Greek elections, and (3) weaker U.S. retail sales data. The Monetary Board kept benchmark policy rates unchanged, but revised the 2012 inflation forecast a tad higher to 3.10% from 3.07%.
 

Market Situationer (4-8 June 2012)

Government Securities
The Bureau of Treasury rejected all bids for last Tuesday’s 7-year Treasury Bond re-issue. Due to the paper’s illiquid nature and the lack of interest in the shorter tenors, market players submitted high bids, which the BTr was forced to reject. Had the BTr made a full award, yields would have fetched an average of 5.334%, much higher than the 5.15% PDST-R1 that morning. Total tenders amounted to only P5.965 billion.

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Market reaction to the release of slower-than-expected May 2012 headline inflation was minimal. Announcements of a possible scrapping of PSALM-specific borrowings by the BTr, the rejection of the bond auction, and the unexpected 25 bps rate cut in Chinese interest rates spurred secondary market rates lower the rest of the week. Higher GDP forecasts for the Philippine economy could have attracted some “hot money” flows, as shown by the appreciating Peso. From 6.08% on Monday, FXTN 20-17 reached a low of 5.9175% on Friday afternoon. The 24-year FXTN 25-8, meanwhile, shed 5 bps to cap the week at 6.1525%.

Market Situationer (28 May - 1 June 2012)

Government Securities

The Bureau of Treasury awarded last Monday’s Treasury Bill auction in part. The BTr rejected all the bids for the 91-day T-Bills, but made a full award of the 182- and 364-day tenors. There were no major movements in the rates, as the average yields for the 182- and 364-day bills fetched 2.30% (+ 4.2 bps) and 2.50% (- 1.8 bps), respectively. The BTr issued a total of P5.5 billion out of the P7.5 billion offer.

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The secondary market traded sideways with an upward bias the entire week. Trading bands were narrow, as market reaction to Moody’s revision to the Philippines’ credit outlook was minimal. The release of better-than-expected 1Q 2012 GDP data spurred some knee-jerk selling, but at the end of the day, changes were minimal. FXTN 20-17 traded between 6.00% - 6.06%, while FXTN 25-8 ranged from 6.15% to 6.20%.

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).