January 25, 2016

TREASURY MARKET UPDATES DAILY

RATES & FX

USD/PHP Spot Trading

 The USDPHP opened lower at 47.840 after risk did better overnight and the USD was softer
following ECB Chair Draghi’s statement on adding additional easing during the ECB meeting in
March to support the Eurozone economy. The USD was bid however the entire morning session
as market expected large corporate demand and looked to position for the flow. Offers were
taken up to 47.915 in the morning but spot settled to around 47.870 – 47.890 just before the
break. In the afternoon, sentiment on the USDPHP turned as it gapped lower to open the PM
session at 47.810 as the USD was sold off across the region with 1-month NDF going back below
the 48.00 handle along with the NIKKEI Index rallying. Some dip buying was seen around these
levels but it ultimately went lower as players caught long looked to cover their positions and other
players hedged their weekend USD inflows and so the USDPHP closed at 47.805.

Rates Trading

 Strong buying interest was felt in the morning session as offers were lifted in the overnight to
tod/week tenors. Overnight opened at 0.0085 and reached 0.0090 by end of morning session.
Tod/5, Tod/6 and Tod/week tenors dealt at 0.0028 points per day as PHP was demanded for
funding over the weekend. It was a relatively quiet session in the afternoon with the 1 month tenor
being given at 9.2 cents.

 No done deals in the PHP IRS market. 3M PHIREF marked higher to 2.794%.

Today (January 25)

 Canada Retail Sales for the month of November rose to 1.7%, much higher than market
expectation of 0.2%
 Canada CPI for December printed lower than estimate. MoM was -0.5% vs -0.4% expectation
and YoY was +1.6% vs +1.7% expectation.
 Oil prices rose as both Brent and WTI Crude trade higher above $32.00/barrel. USDCAD traded
almost 200 bps lower from 1.4300 levels to just above 1.4100.
 10y UST yields climbed to the week’s high of 2.0870% on risk-off sentiment while USDJPY
continued the uptrend towards 118.50-119.00 levels as the Yen’s safe-haven appeal waned.
 US Markit Manufacturing PMI came out higher at 52.7 vs. consensus of 51.0.
 1s USDPHP NDF closed at 47.860 / 47.920.
 Expect USDPHP to trade within a 47.600 – 47.900 range.

Last Week (January 18 – January 22)

 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.
 After reaching its multi-year low, crude oil retraced higher as Brent hit 29.50 level overnight
before trading back down to 28.50.
 Asian stock index futures were mostly down as traders brace for China economic data. Nikkei
index futures were down 0.2 percent while Kospi and Hang Seng index futures declined by 0.3
 percent. China retail sales, industrial production and GDP are set to be released today with
expectations just in line with previous figures.
 China’s economy slowed in December, capping the weakest quarter of growth since 2009 global
recession. Industrial Production and Retail Sales all slowed at the end of the year, while Gross
Domestic Product YOY rose by 6.8% against expectation of 6.9% in the fourth quarter of 2015.
 During yesterday’s Asian session, yen and commodity currencies advanced as China’s slightly
lower than expectation growth raised speculation China may increase economic stimulus.
 WTI Crude dropped drastically to $28.23/barrel from highs of $30.21. As a result, USDCAD
spiked by 100 pips and reached high of 1.4588.
 The International Monetary Fund cut its world growth outlook to 3.4% this year, down from a
projected 3.6% in October due to slumping commodities and rising dollar.
 U.S. CPI MoM and YoY for December were both lower by 0.1% against market expectations.
(December MoM -0.1%; YoY 0.7%)
 Bank of Canada (BOC) kept interest rates unchanged at 0.5% in line with consensus. However,
the market was disappointed by the central bank’s lack of action despite lower oil prices.
USDCAD tumbled from $1.4690 down to $1.4477. Players are still expecting a sooner than later
rate cut from the BOC.
 USDJPY briefly traded below $116.00 but Bank of Japan (BOJ) officials are reportedly watching
the FX markets closely, given the Yen’s strength on risk-off moves.
 S&P 500 Index ended up 1.2% lower from being down 3.7% as risk continues to perform poorly.
Oil traded below $27/barrel, its lowest level since 2003. Treasuries rallied, with 10-year yields
dropping close to 1.9400% as it closed below 2.0000% for the first time since October 2015.
 EURUSD reached $1.0976 on the back of risk-off sentiment, but was sold down ahead of the key
$1.1000 resistance level.
 European Central Bank President Mario Draghi indicated that the governing council may deliver
additional stimulus at its next meeting in March given that the outlook for inflation had weakened
significantly.
 In yesterday’s Asian session, The People’s Bank of China added 400 billion yuan to the financial
system using reverse-repurchase agreements, the most in three years, bringing the net injections
to more than 1 trillion yuan.
 Crude Oil surges towards $30/barrel amid signals from China and Europe that officials will
increase stimulus if needed
 Commodity-reliant currencies gained with USDCAD falling 200 pips to reach 1.4260 levels. NZD
and AUD spiked by 100 pips.
 Risk sentiment increased with The Dow Jones Industrial Average gaining 115.94 points, or 0.7%
to 15,882.68. U.S Treasuries rose by 2 to 4 bps.
 US Initial Jobless Claims climbed by 10,000 to 293,000 (Market estimate: 278,000) in the week
ended Jan 16. The four week moving average of claims increased to 285,000, the highest
reading since last April.

This Week (January 25 – January 29)

 Risk seems to be doing well with market players having their feet off the pedal on risk-off trades.
The rebound in oil prices has also boosted global risk appetite as markets seem to have
stabilized. For USDPHP, with most of the local demand almost done for the month, 48.000 seems
to be the top for now. Support levels are at 47.500, 47.300 and 47.000. We expect a range of
47.200 – 48.200.
Trading Ranges

Month Range : 46.000 – 48.000

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

PDEX Daily Summary (January 22) PDEX Weekly Summary (January 18 – January 22)
WAR 47.857 Open 47.800
Open 47.840 High 47.950
High 47.915 Low 47.580
Low 47.800 Close 47.805
Close 47.805
Volume 511.80 M
GLOBAL BOND MARKET

 The Standard & Poor’s 500 Index rebounded on Thursday and Friday after as much as
$2.4 trillion was shaved from U.S. equities amid plunging oil prices and mounting
concerns over China’s growth. The S&P 500 gained 1.4 percent to end the holiday-
shortened week at 1,906.90, as optimism that central banks from China to Europe will
broaden stimulus measure lifted stocks in the final two days by 2.6 percent. US treasury
yields climbed as U.S. equities added to a global rally and Brent crude oil jumped more
than 8 percent.

 US treasury yields climbed as U.S. equities added to a global rally and Brent crude oil
jumped more than 8 percent. U.S. debt has slipped from its Wednesday high, when a
selloff in risky assets sent the 10-year yield to the lowest since October. It dropped as
low as 1.94 percent this week, versus the record of 1.379 percent set in 2012, as
investors sought safety in bonds amid a global stocks rout. Friday ended with the 10yr at
2.052%, 2bps higher from Thursday NY close.

 In IG, we saw oil & gas names open tighter on the back of stronger oil overnight.
However, China O&G, tech, traded wider throughout the day as the SHCOMP was
choppy. Dealers in the Asia credit space seem jittery as China has been a constant
factor since the start of the year and can't be written off just yet.

 In HY sovs, overall risk sentiment improved last Friday morning on the back of the rally
in oil and hints of further easing from the ECB and BOJ. INDONs opened 0.50 to 0.75 of
a point higher and ROPs 0.25 of a point higher, with street lifting dominating the market
as dealers are caught short on the INDON space. INDON benchmarks gapped 10 to 15
bps tighter, while ROPs moved 5 to 7 bps tighter.

 We saw more relief from the recent sell-off last Friday, with oil up 9% day-on-day and
equities sustaining a two day rally in developed markets. The risk on rally may well
continue today although choppy trading may still persist as sentiment could turn sour
rather quickly as we’ve seen these past 3 weeks.

CT10 2.052
ROP 21 2.136
ROP 4.2 24 2.834
ROP 40 3.721
INDON 26 4.781
INDON 46 6.045
PHP BOND MARKET

Market Activity (Previous day)

The GS market saw some demand from players this morning causing yields to slide down 3-5 bps for the
belly and long ends. Demand continued for the afternoon session as securities closed the day 5-10 bps
lower. Today's increased demand can be attributed to the slight rebound for oil prices, treasury yields and
even equities overnight. To add to this, expectations of increased stimulus for Japan, ECB and China
has supplemented to the risk-on tone felt by the market today.

Market Outlook (Today)

The desk believes that the demand for securities will continue to next week given the additional liquidity
from the maturity of F7-48. We think the liquidity would spillover to the liquid issues and would drive yields
lower. We continue to watch developments abroad, centered on oil prices and the possible easing plans
from Japan, ECB and China.

PDST-F
1M 2.5367
3M 1.6971
6M 2.23
1Y 2.4683
2Y 4.2067
3Y 4.4167
4Y 4.0805
5Y 4.3211
7Y 4.975
10Y 4.6084
20Y 5.7533
25Y 5.4127