January 14, 2016

TREASURY MARKET UPDATES DAILY

RATES & FX

USD/PHP Spot Trading

 USDPHP sustained its bid tone despite opening lower at 47.350. Better Chinese trade data led to
some USD selling against Asia, but USDPHP continued to decouple from the region, with local
demand driving up the pair. Once the 47.450 level broke, escalated buying of the greenback
pushed USDPHP to multi-year highs of 47.550. Some relief was momentarily seen as the USD
further declined versus our regional counterparts, but persistent demand from a known corporate
client kept the pair elevated, eventually closing at 47.545.

Rates Trading

 Swap points continued to move sideways as good two way interest persisted on the short end of
the curve. Overnight and 1w still traded at 0.0025 points per day. Also, better bids emerged in the
1 month, 3 month, and 1 year tenors.
 No done deals in the PHP IRS market. 3M PHIREF slightly increased to 2.539%

Today (January 14)

 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.
 Expect USDPHP to trade within a 47.350 – 650 range today.

Last Week (January 04 – January 08)

 US Pending Home Sales for November fell by 0.9% versus an expected 0.7% gain, as rising
prices and limited supply of properties contribute to the slowdown in the housing market towards
year-end.
 US Initial Jobless Claims rose to 287k, worse than market consensus of 270k and counteracting
last period’s dip to 267k.
 China Manufacturing PMI for December came out at 49.7, slightly lower than the 49.8 estimate,
but remains to be a weaker figure for a fifth straight month.
 Oil prices surged higher as WTI and Brent Crude climbed back to $37.00-38.00/barrel levels.
 Global stocks tumble to start the year amid growth concerns in China and geopolitical issues in
the Middle East. S&P Index fell by 1.53% following the move of China stocks during the Asian
session which closed at -7%.
 With stock selloff and overall risk-off tone, US Treasuries rose on safe-haven demand with 10
year yields reaching lows of 2.20, a decline of around 6bps
 US Markit Manufacturing PMI posted slightly better than forecasts at 51.2 while ISM
Manufacturing contracts at the fastest pace in six years, printing at 48.2 with median forecasts at
49.
  Fed’s Mester and Williams shrugged off decline in stocks and global risk stating that “relative to
most countries, US economy is in very good shape”. Williams added that he expects Fed to hike
3-5 times in 2016.
 The euro fell sharply to drop fresh one month lows as inflation growth in the euro zone fell for the
second consecutive month providing signals that the European Central Bank (ECB) could employ
additional stimulus measures in the coming weeks to stave off risk of deflation.
 German unemployment decreased by 14,000 last month better than expectations of a drop of
6,000. Unemployment rate held steady at a record low of 6.3% in December.
 Markets continue to be jittery amid concerns over growing tensions in the Middle East after Saudi
Arabia executed a prominent Shi’ite cleric, prompting a retaliatory attack on the Saudi Embassy in
Iran.
 U.K. Markit construction PMI rose to 57.8 from November’s 55.3 and ahead of forecasts for a
reading of 56.0
 Minutes of FOMC meeting last December was released early this morning, with a lot of talk
among members about their concerns on the inflation target. It seems that the focus has shifted
from watching the labor market to now monitoring inflation. The committee said that it is
reasonably confident in its expectation that inflation would rise, but members are still wary of
some risks that include the continued pressure in oil and commodity prices and the rise in the
exchange value of the USD. The minutes also showed that the December rate hike was a close
call for some members.
 U.S. data came out mixed, with ADP Employment Change printing higher than expected (257k
vs. 198k), while ISM Non-Manufacturing Composite coming out weaker than forecast (55.3 vs.
56.0)
 Oil prices tumbled around the $34/barrel area as inventories surged once again. This further
sparked the already running risk-off sentiment, which started when China weakened its currency.
Global stocks were sold off, treasuries rallied, and safe haven currencies gained.
 Yesterday’s much weaker-than-expected China fix and subsequent weakness in China’s equity
market (the 7% circuit breaker loss limit triggered within an hour after the open) reflected in large
losses across Asian equity markets and later in further losses in the European markets. In the
US, the S&P closed down 2.37% and equity markets worldwide saw a sea of losses in a broad
risk-off move.
 News the China regulators would eliminate the 7% circuit breaker blamed fro exacerbating selling
pressure generated only short-lived relief and a Reuter report in the NY PM session indicating
that some PBOC advisers were advocating more significant CNY depreciation further aggravated
market conditions in an already panicking market.
 Oil prices continue to tank with WTI and Brent both hitting 12yr lows to below $33/bbl, and broad
risk-off move pushed yields lower 4-5bps.

This Week (January 11 – January 15)

 The greenback is off to a good start for the year on the back of risk-off activity as well as good
jobs data from the U.S. For USDPHP, buying interest continues to be seen below 47.000. More
support for the pair can be anticipated this week as clients will look to purchase USD for their
mid-month requirements. Initial resistance will be at 47.300, followed by 47.500. Expect to be see
a 46.700 – 47.700 range for the week.
Trading Ranges

Month Range : 46.000 – 48.000

Week Range : 46.700 – 47.700
Day Range : 47.400 – 47.700

PDEX Daily Summary (January 13) PDEX Weekly Summary (January 04 – January 08)
WAR 47.457 Open 47.000
Open 47.350 High 47.175
High 47.550 Low 46.820
Low 47.350 Close 47.165
Close 47.545
Volume 858.80 M
GLOBAL BOND MARKET

 Treasuries rallied after investors flocked to a $21 billion auction of 10-year notes at the
lowest yields since October amid concern that global growth is slowing. Treasuries are
surging this year as investors seek havens amid plunging commodity prices and stock-
market turbulence emanating from China that threaten to undermine global growth. A
bond-market gauge of inflation expectations over the next decade, known as the break-
even rate, fell to the lowest since September. The benchmark 10-year note yield fell
one basis point, or 0.01 percentage point, to 2.09%. Intra-day low was at 2.04%.

 The 2016 selloff in U.S. stocks intensified, with the Dow Jones Industrial Average
tumbling more than 360 points, as consumer shares led the latest rout in a turbulent start
to the year that has erased at least $1.6 trillion from equities. The Standard & Poor’s 500
Index slid 2.5 percent to 1,890.28 at 4 p.m. in New York, its lowest close since Sept. 29.

 IG spreads remained choppy with spreads coming in strong early in the session only to
be sold off in the afternoon. ROPs and INDONs underperformed with spreads wider by
3-7bps. Rallies are met with sellers with risk off sentiment still the main driver. CDS
levels were down a bit in the morning though end of day levels were unchanged.

 We expect spreads to widen (again) today with caution to most likely dominate risk
sentiment with oil trading just above USD 30 and treasuries rallying (again). CDS levels
pointing to a 4-14bp sell-off on spreads. Sellers using any rally to de-risk.

CT10 2.093
ROP 21 2.152
ROP 4.2 24 2.898
ROP 40 3.739
INDON 26 4.777
INDON 46 5.990
PHP BOND MARKET

Market Activity (Previous day)

Today we saw a flattening of the yield curve. The GS market had a sell-off for securities across the board
today. The morning session saw trades mostly focused on the belly and shorter dates. Come the
afternoon session, we saw stronger selling from dealers that caused yields to gain higher across the
curve. The 3-5 yr tenor ended the day 7-18 bps higher, the belly closed the day 7.5-9 bps higher, and the
long end closed 5 bps higher.

Market Outlook (Today)

Our expectations for the GS market remain biased towards higher yields. Market sentiment still feels
cautious as players were quick to pull out their bids in this afternoon's sell-off. Market continues to digest
the new supply of F10-60 and we expect securities to test new trading ranges. We also look forward to
the t-bill auction next week.

PDST-F
1M 3.522
3M 2.3717
6M 2.7267
1Y 2.6057
2Y 4.24
3Y 4.4417
4Y 4.5867
5Y 4.3812
7Y 4.8257
10Y 4.4891
20Y 5.745
25Y 5.2495