Philippine government bond yields rise as peso weakness stokes inflation concerns

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Philippine bond yields rise

Highlights

Average Philippine government securities yields rise 10.02 basis points week-on-week as investors respond to inflation risks and peso weakness.
Short-term Treasury bill yields climb to 5.8137% (91-day), 6.3% (182-day), and 6.5727% (364-day), while the 10-year note increases to 8.1337%.
Trading volume falls to P14.17 billion from P16.24 billion as BSP's hawkish stance and uncertainty over terminal policy rate prompt cautious market sentiment.

Yield moves and market drivers

As reported by BusinessWorld Online, yields on government securities traded in the secondary market mostly climb last week as investors weigh lingering inflation risks, uncertainty over the monetary policy outlook, and continued peso weakness.

PHP Bloomberg Valuation Service Reference Rates as of Oct. 30, published on the Philippine Dealing System’s website, show average GS yields rising by 10.02 basis points week on week. At the short end, yields on the 91-, 182-, and 364-day Treasury bills increase to 5.8137%, 6.3%, and 6.5727%, respectively.

Across the belly of the curve, yields on the two-, three-, four-, five-, and seven-year Treasury bonds also move higher, while the 10-year note rises to 8.1337%. At the long end, the 20-year and 25-year tenors edge slightly lower. Trading volume declines to P14.17 billion from P16.24 billion a week earlier.

Lodevico M. Ulpo, Jr., vice-president and head of fixed income strategies at ATRAM Trust Corp., says the yield curve bear-steepens amid persistent inflation concerns, currency weakness, and expectations of a higher-for-longer global rates environment. He says the BSP’s hawkish tone after its 50-basis-point rate hike on Oct. 22 weighs on sentiment and triggers selling pressure, especially in the belly of the curve, although later buying helps trim some losses.

Maybank Investment Banking Group analysts Winson Phoon and Erine Yu say the rise in yields reflects continued uncertainty over the BSP’s terminal policy rate after the surprise rate increase. They add that the weaker peso and lingering inflation concerns, alongside firm crude prices, keep the policy outlook uncertain and encourage price discovery at higher yield levels.

Our earlier article on planned Philippine sovereign bond reforms explained how a new pricing convention for peso government bonds and potential inclusion in J.P. Morgan’s Government Bond Index-EM could improve comparability, liquidity, and foreign participation. It also noted that any sustained benefits for yields and capital inflows still hinge on factors like global rate conditions, exchange-rate expectations, and fiscal credibility, and that broader capital-market and structural reforms are needed for modernization to translate into real-economy investment.

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