Philippine government securities seen posting mixed yields ahead of BSP decision

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Highlights

Philippine Bureau of the Treasury will auction P55 billion in short-term securities on Monday and P30 billion in reissued 20-year bonds on Tuesday amid defensive sentiment.
Short-term bill yields dropped week on week—35-day, 91-day, and 182-day bills fell to 5.3198%, 5.6764%, and 6.0671%—while 364-day T-bill climbed 11.12 basis points to 6.3193%.
BusinessWorld poll shows 20 of 22 analysts expect BSP to raise reverse repurchase rate by 25 basis points to 5.25% on Thursday, likely the highest in 1.5 years.

Treasury auctions test demand before policy meeting

As reported by BusinessWorld Online, the Bureau of the Treasury will auction a combined P55 billion in short-term securities on Monday, made up of P10 billion in 35-day cash management bills, P20 billion in 91-day Treasury bills, P15 billion in 182-day papers, and P10 billion in 364-day debt. On Tuesday, the government is also seeking to raise P30 billion from reissued 20-year Treasury bonds with a remaining life of four years and nine months.

Market pricing suggests this week's offerings could mirror mixed secondary-market moves, with short-term yields declining while belly and long-end rates rise. A trader said the market is "dead quiet" as consolidation continues, adding that the five-year auction tenor closest to the reissued bond could add pressure on yields, while overall sentiment remains defensive amid a lack of supportive local and external news.

The trader said the reissued bonds could draw tepid demand and fetch rates of 7.75% to 7.8% because of broad risk-off sentiment. In the secondary market on Friday, yields on the 35-day, 91-day, and 182-day bills fell by 19.78 basis points, 8.51 basis points, and 2.49 basis points week on week to 5.3198%, 5.6764%, and 6.0671%, respectively, while the 364-day T-bill rose by 11.12 basis points to 6.3193%.

Rate hike expectations shape borrowing costs

The yield on the 20-year bond climbed by 18.8 basis points week on week to 8.3856%, while the five-year paper, the closest benchmark to Tuesday's offer, rose by 4.9 basis points to 7.6738%. A BusinessWorld poll showed 20 of 22 analysts expect the BSP's Monetary Board to raise the target reverse repurchase rate by 25 basis points to 5.25% at its meeting on Thursday, which would match the benchmark rate set in June 2025 and mark the highest level in one-and-a-half years since 5.5% in April 2025.

Two analysts are pricing in a 50-basis-point increase, arguing that a larger move could keep the central bank from falling behind the curve. The latest auction results also point to selective demand, with the Treasury raising just P8.915 billion from a P10-billion offer of 35-day cash management bills on Oct. 5 at an average rate of 5.229%.

Last week, the Treasury borrowed P39.917 billion from T-bills, below its P45-billion target, even as tenders reached P61.232 billion. It raised P16.94 billion from 91-day T-bills at an average rate of 5.845%, P12.987 billion from 182-day debt at 6.171%, and its full P10-billion goal from 364-day papers at 6.351%. The 20-year notes being reissued on Tuesday were last offered on Sept. 22, when the government raised P30 billion as planned at an average rate of 7.438%, below the 8% coupon.

The Treasury is aiming to raise P418 billion from the domestic market this month, including P168 billion through T-bills and P250 billion via T-bonds. The government relies on local and foreign borrowing to help fund a budget deficit capped at P1.659 trillion, or 5.4% of gross domestic product, this year.

Our earlier article on planned Philippine sovereign bond reforms explained how a new pricing convention for peso-denominated government bonds and expected inclusion in J.P. Morgan’s Government Bond Index-EM could improve comparability, liquidity, and foreign participation. It also noted that any benefits for yields and capital inflows are not automatic and still depend on global rate conditions, exchange-rate expectations, and fiscal credibility, alongside broader efforts to deepen domestic capital markets.

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