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COMMENTARY FOR INFINITY PESO UNIT INVESTMENT TRUST FUND (UITF)
The Peso trust Maximizer posted an absolute year-to-date return of 2.6315% and year-on-year return of 3.7838%, net of taxes and fees while the Infinity Peso Long Term Bond Fund had an absolute return of 3.81515% since its inception date as of end of the second quarter of 2008.
The unfolding developments from the international markets, which started in the housing market in the USA and extended to the credit markets, has shaped the sentiment in the domestic bond market this quarter. The international market, together with the Philippine financial markets watched in awe the ensuing sentiment as reflected in the steep decline in the equities market in Wall Street. The powerhouses of investment banking fell due to the credit crisis which, some were saying, was still in an uptrend. Fear of the unknown, on which financial institution and how much is their exposure to credit derivatives, fed into the market as credit tightened substantially. Selling of securities low risk rated to high risk rated were seen.
Mitigants to the negative sentiment in the international credit martket was the slowing down of inflationary pressure, primarily brought about by the declining oil prices and excess liquidity. Strong local demand for the primary issuance of the government of the Retail Treasury Bonds bolstered the demand of bonds throughout the yield curve pushing yiels lower by more than 80bps across.
However, yields increased subsequently from their five months lows as bank failures and bailouts of financial institutions abounded in the news. Despite the relative safetyof the loacal markets, as exposures of local banks to Lehman Brothers, Meryl Lynch and Bear Sterns were limited and is only a small percentage and is only a small percentage of their capital, banks saw fit to limit risk by selling off their local debt holdings to increase liquidity, raising yields an average of 57 bps across the curve. As some banks recalibrated the duration of their investments, we saw shiftings of investments from the longer tenor bonds to the shorter tenured bonds causing a steepening of the yield curve.
Assuaged by recently released, lower than expected CPI figures (11.9% YoY; -0.4% MoM), the market's appetite for government securities is returning. After a series of rather painful hikes earlier in the quarter, the Monetary Board held the Philippines' key rate at 6.0% last October 6, signaling to the market that 1) there the inflation rate may potentially be nearing its peak and 2) the government would also want to focus on the growth target. This created a positive sentiment.
The rejection of bids of the market participants by the Bureau of Treasury for the seven year auction sent a signal to the market that the government is not in need of immediate funding to address any fiscal targets and will only chose to borrow at yields acceptable to them.
The Peso Trust Maximizer and Infinity Peso lOng Term Bond Fund will continue to be invested in short duration as we closely monitor events in the international markets, which may affect the domestic bond market.
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