January 20, 2016

TREASURY MARKET UPDATES DAILY

RATES & FX

USD/PHP Spot Trading

 USDPHP opened at 47.650 same as the previous day’s close as NY holiday left FX pairs quiet
overnight. Trading was very lethargic at the onset with no particular bias to go either side.
However, the USDPHP found support around the 47.650 47.670 levels after a slightly softer GDP
and Industrial Production print in China saw some buying in the local pair. That, and local
demand for USD from corporate names brought the USDPHP to a high of 47.750. Long Profit
taking was seen thereafter from banks ahead of 47.800. A slight relief in risk tone in the afternoon
saw the USDPHP touch lows of 47.580 where buyers who looked to take advantage of the dip
then emerged. The USDPHP eventually closed at 47.670 with total of 827.60 million in volume
traded.

Rates Trading

 In the USDPHP market, heavy peso demand was seen in the front end of the curve as players
continued to lock in PHP funding. Overnight dealt to high as of 0.0029 while 1w and 2w tenors
still traded at 0.0027 points per day.

 No done deals in PHP IRS market. 3M PHIREF marked sideway at 2.670%.

Today (January 20)

 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.
 US Treasuries rose by 1 to 3 bps as gains in global stocks undermined demand for safe haven
assets.
 1s USDPHP NDF closed at 47.88.
 Expect USDPHP to trade within a 47.550 – 47.850 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 : 47.550 – 47.850

PDEX Daily Summary (January 19) PDEX Weekly Summary (January 11 – January 15)
WAR 47.673 Open 47.300
Open 47.650 High 47.780
High 47.750 Low 47.195
Low 47.580 Close 47.740
Close 47.670
Volume 827.60 M
GLOBAL BOND MARKET

 U.S. equities erased losses that brought them to the brink of lows not seen since last
August’s selloff, with gains in consumer and utility shares outweighing losses
among commodity stocks as oil resumed its tumble. The S&P 500 Index ended
Tuesday up 0.1 percent, while the Dow Jones Industrial Average added 28 points as
the U.S. struggled to emulate gains in Europe and Asia that helped a gauge of global
stocks rally from a 2 1/2-year low.

 Treasury yields rose from their lowest level since October as gains in global stocks
undermined demand for a haven. CT10s declined for the first time in five sessions as
evidence of an economic slowdown in China fueled speculation of further government
stimulus, weakening the appetite for the relative safety of fixed-income securities.

 HY Sovs had a surprisingly firm tone as dealers rushed to cover short positions following
Friday’s massive selloff. Dealers seem to be light on risk still as overall liquidity remains
poor with prices jumping 0.25 to 0.50 of a point per print. INDONs and ROPs are higher
by 0.625 to 1 point with spreads tightening by 5 to 8 bps. In IG space, we saw China
AMC outperform while oil and gas names still trying to recover, though spreads were a
tad tighter day on day.

 We expect headline trading to be the theme in the next couple of days as no real
catalyst emerges. Sovs are starting to look attractive in spread terms though as previous
moves have brought us to the wides.

CT10 2.056
ROP 21 2.172
ROP 4.2 24 2.872
ROP 40 3.749
INDON 26 4.848
INDON 46 6.061
PHP BOND MARKET

Market Activity (Previous day)

Expect possible demand in the short end of the curve as F7-48 is maturing this January 27. Good support
still seen on the bids despite the market continuing to touch new highs.

Market Outlook (Today)

Expecting yields to slowly go down slowly and possibly trickling down to the long end of the curve with the
upcoming big maturity of F7-48 and the abundant liquidity in the system.

PDST-F
1M 2.6183
3M 1.7862
6M 1.7488
1Y 2.0326
2Y 4.245
3Y 4.4687
4Y 4.125
5Y 4.4662
7Y 4.9617
10Y 4.6461
20Y 5.7383
25Y 5.94