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First Metro Weekly Fixed Income Summary and Outlook – January 22 – 26, 2018

Outlook. Local bond yields rising. This due to higher US Treasuries touching a two year high of 2.72%. Locally, the short-end (T-bills) moved up. See below. The five year retraced 4.75% from a low of 4.6%.

The rates will remain elevated. Given this view, government did a partial award at the T-bill auction to temper the rate rise.

A second factor is FOMC’s meet this week (January 30-31), though expected to keep rates steady given lower-than-the expected GDP growth rate of 2.6% versus 2.9% . The preceding quarter’s GDP was 3.2%. Average US GDP for the entire 2017 was 2.3% vs forecast of 2.5%.

Still, the Fed is seen to take on a slightly more hawkish tone ahead of the hike in March, already largely priced in by the market. Markets now digesting the tapering of quantitative easing (QE) in the EU and Japan, whose central banks will be meeting this Thursday (PH time) and Monday-Tuedsay, respectively.

Market review. The spread between the 10-yr US Treasury (UST) and the 10-yr local benchmark widened further to 338bps from 331bps in the prior week as the yield of the 10-yr US Treasury (UST) ended the week 2bps higher to 2.66% while the 10-yr local benchmark rose faster by 10bps to 6.04%.

UST yields shot up on Treasury Secretary Mnuchin’s strong dollar preference The dollar index is down by 2.8% year-to-date (YTD) to 89.5.

Yields of ROPs tracked USTs, with the former up by an average of 7bps WoW while the latter rose by 1bp WoW on average.

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