January 18, 2016

TREASURY MARKET UPDATES DAILY

RATES & FX

USD/PHP Spot Trading

 USDPHP opened at 47.630 and was a largely a one-way move upward as the pair trended higher
following a stubbornly high USD/Asia the entire day. A low of 47.60 was initially given right after
the open but buyers quickly emerged and offers were gradually taken throughout the day, albeit
at a relatively slower pace. Market was seemingly reluctant to buy up the pair too quickly with
concerns about agent intervention at 47.750, but as offshore swap points crept on higher and
agent intervention seemingly absent at 47.750, the USPHP reached a high of 47.780. Long profit
taking was seen late in the afternoon session with players not willing to test new highs after a
volatile week for the USDPHP and the pair was sold down to where it closed at 47.740

Rates Trading

 Strong buying demand emerged in the front end of the curve as players scrambled for peso
liquidity to cross three day weekend. Overnight points were lifted to highs of 0.0032 points per
day while tod/5 and tod/7 tenors reached up to 0.0029 points per day. In the afternoon session,
good trading volume was seen in the tom/next to belly tenors as players continued to buy points.
Tom/next dealt up to 0.003 points per day and belly of the curve points increased to 0.0026 points
per day.

 In the PHP IRS market, 4yr tenor was lifted for 650Mio at 3.400%. 3M PHIREF marked higher at
2.599%.

Today (January 18)

 US retail sales for December met expectations at -0.1%, although lower than prior period’s 0.2%,
which was revised upwards to 0.4%.
 University of Michigan Consumer Sentiment preliminary figure for January came out at 93.3,
slightly better than market estimate of 92.9 and previous month’s 92.6.
 International sanctions from Iran were lifted paving the way for increased oil exports from the
OPEC producer amid a global glut. Brent Crude reached lows of 27.73, while WTI Crude
extended drops to 28.36.
 10y UST yields dipped to sub-2.00% levels while USDJPY continues to print lows towards 116.50
on the back of risk-off sentiment.
 1s USDPHP NDF closed at 48.20.
 Expect USDPHP to trade within a 47.600 – 47.900 range.

Last Week (January 11 – January 15)

 Oil prices continue to drop with Both Brent and WTI Crude trading back down to 33.05 and 32.68,
coming from above 34.00 and 33.00, respectively.
 USDJPY continues to print fresh lows as the pair dipped to sub-117.00 levels, once again
tracking the move of 10y US Treasuries.
 Oil hit its 12-year low with WTI crude reaching sub- $31/barrel levels on the back of a projected
increase in inventory figure last week to be reported later this week. Bloomberg Commodity Index
reached its lowest level since 1999.
 Commodity-reliant currencies got hit with USDCAD spiking 175 pips higher to reach 1.4245.
Downside was capped for NZD and AUD trading within a 30 to 50 pip range.
  Fed’s Lockhart said he favors further tightening of monetary policy this year and that market
selloff is unlikely to affect US economy adding that data dependency remains to be the focus for
rate guidance. West Texas Intermediate crude dropped to below $30 a barrel in New York for
the first time in 12 years on concerns that slow down of China’s economic growth will curb fuel
demand.
 Commodity-reliant currencies weakened with USDCAD reaching as high as 1.4315.
 US Treasuries rallied with 10 year and 30 year yields lower by 8bps and 10bps respectively. 10
year treasury closed at 2.105%.
 During yesterday’s Asian session, we saw China trade balance higher than expected at $60.09B,
beating the $51.30B estimate. Both exports and imports were better than forecast at -1.4% and -
7.6%, respectively.
 Oil prices continue to be choppy, trading around the $30/barrel level, prompting players to reduce
risk assets. Safe haven currencies rallied, with USDJPY trading back down to $117.50 after
touching $118.38 highs last night. The USD resumed its rally versus commodities and EM after
selling off after the China data. Treasury yields (10-yr) went as low as 2.0420% but recovered
back to just below 2.1000%. Stocks also underperformed on the risk-off tone, with the S&P 500
breaking the 1,900.00 support level.
 ECB minutes came out showing that some governing council members were split, with some
arguing for a larger rate cut at the December meeting, which weighed on the EUR.
 BOE kept interest rates unchanged, showing a vote of 8-1. Minutes showed the MPC is not duly
alarmed by the recent fall in oil, wage growth or equity prices. They acknowledge the fall in oil will
push back inflation expectations, but believe lower oil prices primarily reflect supply developments
and so should boost growth in the UK.
 FED’s Bullard expressed dovish concerns on the inflation outlook which saw yields ease
somewhat, and the USD initially went marginally lower on back of the scaling of rate hike
expectations (and thus more gradual future rate hikes) but gained again once risk sentiment
improved. DYX ended net +0.1% with FX moves mainly mixed overnight.
 USDJPY and AUDJPY short covering was seen as risk appetite improved following the move
higher in equities although the slight relief in risk sentiment was muted in USDAsia, as currency
pairs remain bid with market bias still to buy on dips.

This Week (January 18 – January 22)

 Risk is still performing poorly as global uncertainties are prompting market players to seek safe
haven assets. China, oil prices, and global equities remain the main drivers of price actions. For
USDPHP, new highs are being printed almost every day as local demand continues to support
the pair. 47.850 and 48.000 are the next key resistance levels. We expect a range of 47.200 –
48.200 for this week.

Trading Ranges

Month Range : 46.000 – 48.000

Week Range : 47.200 – 48.200
Day Range : 47.600 – 47.900

PDEX Daily Summary (January 15) PDEX Weekly Summary (January 11 – January 15)
WAR 47.722 Open 47.300
Open 47.630 High 47.780
High 47.780 Low 47.195
Low 47.600 Close 47.740
Close 47.740
Volume 440.30 M
GLOBAL BOND MARKET

 A dimming outlook for inflation and global economic growth pulled Treasury yields lower
for a second week amid a stock-market rout and plunging oil prices, as traders push
back the anticipated timing for Federal Reserve interest- rate increases. Benchmark 10-
year yields dipped below 2 percent Friday for the first time since October while yields on
30-year bonds, the maturity most sensitive to inflation, closed at the lowest since
August. The yield on the two- year note, which is most influenced by Fed policy
expectations, fell for a 12th straight trading day.

 U.S. stocks dropped, with the Standard & Poor’s 500 Index falling to its lowest level
since Aug. 25, as the rout in oil persisted and data showing falling retail sales rekindled
concern about the health of the economy. The S&P 500 pared earlier losses that sent it
3.3 percent lower, while technology and energy stocks led losses today. The S&P 500
dropped 2.2 percent to 1,880.29 at 4 p.m. in New York, after earlier falling to the lowest
level since April 2014.

 IG meltdown last Friday with spreads wider by 3 to up to 15bps with high beta names
underperforming this time around as sellers emerged full strength come London time.
INDONs initially rallied Friday morning but closed the day 1/4 to 1pt lower with long-end
underperforming.

 No relief in sight just yet as markets capitulates in a significant manner in a rather late
reaction to oil and equity markets. Expect choppier trading today with bias still on risk
reduction as we seek a bottom in risk assets.

CT10 2.035
ROP 21 2.167
ROP 4.2 24 2.918
ROP 40 3.774
INDON 26 4.906
INDON 46 6.120
PHP BOND MARKET

Market Activity (Previous day)

The GS market opened the day with better bids as demand caused securities to trade 2-4 bps lower for
the morning session. Market again found sellers for the afternoon, causing securities to pare earlier day's
gains. Market continues to feel cautious with players trimming positions on dips. GS yields capped the
week 0.5- 2.5 bps lower across the curve.

Market Outlook (Today)

Outlook for the GS market will be more focused on economic data coming out the next few weeks. We
look forward to GDP data coming out on Jan.28. We also look forward to the Tbills auction today with
20Bn supply coming in.

PDST-F
1M 2.8717
3M 2.6217
6M 3.9493
1Y 3.7096
2Y 3.3
3Y 4.635
4Y 4.1402
5Y 4.9217
7Y 4.9817
10Y 4.6017
20Y 5.8533
25Y 5.96