COMMENTARY FOR INFINITY PESO UNIT INVESTMENT TRUST FUND (UITF)
The Peso Trust Maximizer posted an absolute year-to-date return of .8782% and year-on-year return of 4.5021%, net of taxes and fees while the Infinity Peso Long Term Bond Fund had an absolute return of 4.6772% since its inception date as of end of the first quarter of 2008.
The strong 2007 local economic fundamentals highlighted by the 31 year high GDP growth at 7.3% coupled by a 21 year low inflation at 2.76% and a 10 year low budget deficit of P9.4B initiated positive momentum for the local bond market but failed to sustain low yields as fears of impending US recession and the rapid rise of food and energy led to risk aversion and reversal of further interest rate cut sentiment.
On January 31, the BSP cut rates by 25 basis points bringing the overnight interbank rates to 5% borrowing rate and 7% lending rate - the lowest in 15 years. The largely expected move of the Monetary Board shifted market's focus on the growing US Subprime led-global financial crisis, while the home-grown Senate probe on the corruption behind the ZTE heighten risk aversion. Treasury auction for the bills and bonds showed weak appetite prompting the goverment to cancel auction for the 91 and 182 day treasury bills after a series of unsuccesful auction. The BTR also introduced selling government securities outside the auction or via negotiation, if requirement arises. The surprise cancellation of the longer tenor Special Deposit Account (SDA) facility by mid March, limiting available tenor to 1 month and further reducing yields by 12.5 basis points brought temporary relief to the market.
As a global inflation accelerates on record oil, commodity and food prices, the 1st quarter Philippine Consumer Price Index averaged 5.57% after posting a 6.4% March headline inflation. While initial forecasts point to rate reductions to spur slowing global growth, monetary policy makers signal concern over inflation that shifted bias to hiking rates to temper inflation. The bearish economic developments ended the quarter with yiels higher by an average of 60-75 basis points versus December 2007 closing levels.
We will continue to be cautious given concerns on US economic performamce and rise in inflation but we will be on the lookout for possible investments in local bonds for Peso Trust Maximizer and Infinity Peso Long Term Bond Fund.