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First Metro Weekly Fixed Income Summary and Outlook – January 15 – 19, 2018

Outlook. Local bond yields will be rangebound this week. The Philippines’ 4Q17 GDP numbers came in at 6.6%, a tad lower than the 6.7% median expectation but still one of the fastest in the region.This brought 2017’s average growth to 6.7%, the third fastest growing pace in Asia behind China’s 6.9% and Vietnam’s 6.8%.

Drivers. Fed rate hike this March already priced in on the back of US economic data (CPI, retail sales, payroll, manufacturing, etc). December core consumer price index (CPI) figure rose by 0.3%, the fastest rate in 11 months and higher than expected of 0.2% increase. On the year, core CPI rose by 1.8% from 1.7% in November. Retail sales last December likewise posted solid growth of 0.4%, in line with expectations, despite a robust 0.9% growth in November. Fed hike odds in March shot up to 88% from Monday last week from 70% at the end of 2017.

Market review. The spread between the 10-yr US Treasury (UST) and the 10-yr local benchmark widened to 331bps from 325bps in the prior week as the yield of the 10-yr US Treasury (UST) was up 9bps to 2.64% while the 10-yr local benchmark rose faster by 15bps to 5.95%. Yields of ROPs tracked USTs, with the former up by an average of 6bps WoW while the latter rose by 5bps WoW on average.

The PH government’s $2bn 10-yr global bond sale last week fetched a lower coupon of 3.00% from pricing guidance of 3.30% on strong support from international markets. The bond was sold with a spread of 37.9bps against the 10-yr UST.

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