January 15, 2016

TREASURY MARKET UPDATES DAILY

RATES & FX

USD/PHP Spot Trading

 USDPHP once again gapped higher, opening at 47.600 following the risk-off move overnight
sending USDAsia higher as global equity and commodity markets continue to tank. USDPHP was
very bid for much of the day touching a high of 47.730 in the morning session and saw a lot of
buyers on limited dips around 47.670 -47.700 levels. The start of the afternoon trading session
saw the offshore 1-month NDF level breach the 48.00 handle and market subsequently bought
the pair up to 47.750 (a new YTD high) highs where speculated agent intervention came in.
Rumored agent banks sold the pair down to 47.710 and from there the market turned as players
were caught long and bids were quickly given down to 47.580. However before the close, buyers
started coming in again to re-establish long positions as the market bias was clearly to go long
and the USDPHP ended the day at 47.640.

Rates Trading

 PHP swaps market centered in the overnight tenor as good two way action was seen leading to
points averaging at 0.0025. Decent bids emerged in the 1 month tenor at 8.3 cents.

 3yr IRS was lifted for 300 Mio PHP at 3.250%. PHP IRS marked higher by 25bps in the 4 year
tenor and 5bps the rest of the curve as players showed better bids due to the increase in yields in
PHP Government Securities market. 3M PHIREF marked at 2.575%.

Today (January 15)

 US Initial Jobless Claims for the week of Jan 9 reported higher at 284k vs. exp. 275k and 277k
prev.
 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.
 US Stocks rallied overnight with S&P closing +1.7% on back of higher energy shares as oil
staged a rally over 2% to recover above $30/bbl.UST also higher as 10-Y went as low as 2.05%
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.
 1s USDPHP NDF closed 48.02.
 Expect USDPHP to trade within a 47.500 – 47.900 range.
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 BSP to
be present on any unwanted volatility as we see a 46.700 – 47.700 range for the week.

Trading Ranges

Month Range : 46.000 – 48.000

Week Range : 46.700 – 47.850
Day Range : 47.500 – 47.900

PDEX Daily Summary (January 14) PDEX Weekly Summary (January 04 – January 08)
WAR 47.679 Open 47.000
Open 47.600 High 47.175
High 47.750 Low 46.820
Low 47.580 Close 47.165
Close 47.640
Volume 970.60 M
GLOBAL BOND MARKET

 Treasuries 30-year bonds fell, reversing earlier gains, as a $13 billion sale of the
securities generated lower demand than was seen at a pair of auctions earlier this
week. Demand for the debt was the least since August as investors resisted the lowest
auction yields in five months. Interest in the long bond, which is the most sensitive to
the outlook for inflation, fell as U.S. equities rallied as oil advanced beyond $31 a barrel.
Treasury 30-year yields rose less than one basis point, or 0.01 percentage point, to
2.89 percent.

 Energy and health-care shares led a rebound in U.S. stocks, as the Standard & Poor’s
500 Index followed the steep- est selloff since September with its strongest gain in a
month, and the Dow Jones Industrial Average rallied more than than 220 points. The
S&P 500 rose 1.7 percent to 1,921.84 at 4 p.m. in New York, trimming in the final hour of
trading a gain of as much as 2.3 percent.

 INDONs had a volatile session on the back of the BI cutting benchmark rates (7.25%
from 7.5%) coupled with the bomb blasts that hit Jakarta. Sellers outweighed buyers 2:1
with the INDON curve steepening as the long end bonds underperformed. ROPs had a
light session and prices were stable. CDS opened wider in the morning but gave back
some of its rally as equity indices stayed in the green and futures threaded higher during
London time.

 With risk assets up overnight and China fixing looking stable, we expect some relief on
the spread widening moves we’ve seen these past few days.

CT10 2.087
ROP 21 2.160
ROP 4.2 24 2.902
ROP 40 3.756
INDON 26 4.873
INDON 46 6.062
PHP BOND MARKET

Market Activity (Previous day)

The sell-off for securities continued today for the GS market. The belly and long end securities opened
higher for the morning session, acting against the movement in US treasuries overnight. F10-60 and F20-
17 tested new support levels at 4.475% and 4.825% respectively; yet closing the day lower as market
found buyers toward the afternoon close. Short end tenors ended the day marginally unchanged to 2.5
bps lower, while the belly and long ends closed 2-5 bps higher.

Market Outlook (Today)

Expect more choppy trading from the GS market, with sideways trading for the meantime and yields to
continue to test new support and resistance levels. The desk's bias is still towards higher yields as
players are still quick to trim positions.

PDST-F
1M 3.496
3M 2.3667
6M 2.7397
1Y 2.5172
2Y 4.26
3Y 4.6183
4Y 4.6333
5Y 4.4368
7Y 4.9717
10Y 4.6855
20Y 5.8483
25Y 5.3466