January 13, 2016

TREASURY MARKET UPDATES DAILY

RATES & FX

USD/PHP Spot Trading

 USDPHP opened at 47.240 after some USDAsia selling overnight on back of lower USDCNH due
to funding squeeze in the CNH market. A flattish China fix brought the pair down to 47.195 lows
but it was supported at the low 47.20s level. From there the USDPHP was bid throughout the day
with buyers keen to accumulate USD on dips. Some 2-way action was seen from 47.250 –
47.290 levels but the afternoon saw the pair spike to a year-to-date high of 47.450 as the USD
was bid across the region as the 1 month NDF outright bid pushed past 47.800. Rumors of agent
intervention at 47.450 kept the currency capped at that level and the USDPHP eventually closed
at 47.440 with the strong USD theme firmly intact.

Rates Trading
 USDPHP market traded sideways as points still hovered at roughly 0.0025 points per day across
the curve. Overnight traded steadily at 0.0025 to 0.0026. In the afternoon session, buyers took
advantage of relatively cheap points in the belly by lifting points in the 3s at 23 cents, 4s at 30
cents and 5s at 38.5 cents.

 No done deals in the PHP IRS market. 3M PHIREF marked at 2.486%.

Today (January 13)

 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%.
 US Stocks advanced as technology shares rallied and China’s efforts to shore up its currency
bolstered optimism that it cam tame the turmoil that’s rattled global financial markets.
 1 month USDPHP NDF closed at 47.64 – 47.69.
 Expect USDPHP to trade within a 47.250 – 47.550 range today.

Last Week (December 28 – December 29)

 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 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 : 47.250 – 47.550

PDEX Daily Summary (January 12) PDEX Weekly Summary (January 04 – January 08)
WAR 47.325 Open 47.000
Open 47.240 High 47.175
High 47.450 Low 46.820
Low 47.195 Close 47.165
Close 47.440
Volume 988.00 M
GLOBAL BOND MARKET

 Treasuries surged, pushing 10-year yields to the lowest since October, as a slide in commodity
prices damped the outlook for inflation and fueled concern that global economic growth will cool.
The yield on the 30-year bond, the maturity most sensitive to longer-term inflation expectations,
declined to a one-month low as oil prices fell to the least since 2003. The U.S. sold $24 billion of
three-year notes at the lowest yield at the monthly sales since October.

 U.S. stocks rose in late-afternoon trading for a second day, paced by technology and health-care
shares as China’s efforts to shore up its currency bolstered optimism that it can tame the turmoil
that’s rattled global financial markets. The Standard & Poor’s 500 Index increased 0.8 percent to
1,938.68 at 4 p.m. in New York, the strongest gain in two weeks and the first back-to-back
advance since Dec. 23.

 IG markets traded in a very volatile day as spreads whipped up and down without any conviction.
At the end of day though, sellers won and sent spreads 2-7bps wider. HY sovs ended the 1/2 to
3/4 pt lower and 3-5bps wider for INDONs. ROPs outperformed, ending the day 1/8 to 1/2 a point
lower.

 We expect spreads to widen today with caution to most likely dominate risk sentiment with oil
trading just above USD 30 and treasuries rallying.

CT10 2.103
ROP 21 2.156
ROP 4.2 24 2.940
ROP 40 3.759
INDON 26 4.824
INDON 46 6.024
PHP BOND MARKET

Market Activity (Previous day)

The GS market opened the day quiet with traders staying cautious ahead of the F10-60 auction. Trades
for the morning focused on the shorter tenor (F5-73, F5-72, F7-56, F7-57) while F10-60 opened the day
5bps higher from yesterdays close. Today's auction had good results with 28.08B being tendered and
22.18B awarded. Auction results saw an ave: 4.218%, high: 4.25%, low: 4.12%. After the auction market
saw the yield curve bear steepen with the long ends rising 5-8 bps while the short ends closing the day
marginally unchanged.

Market Outlook (Today)

Our outlook for the near term is biased towards a bear steepening of the yield curve. We expect to test
new ranges for securities on the long end this week. The shorter end of the curve remains supported
ahead of the F7-48 maturity. We look forward to data coming out of the US this week for better guidance,
Initial jobless claims expected at 275k.

PDST-F
1M 3.9821
3M 2.3717
6M 2.7367
1Y 2.8679
2Y 4.2617
3Y 4.3917
4Y 4.5617
5Y 4.302
7Y 4.945
10Y 4.427
20Y 5.705
25Y 5.1552