Philippine government securities yields may rise ahead of inflation data

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Philippine securities yields and inflation

Highlights

Yields on Philippine government securities rose in the secondary market, with 35-day, 91-day, 182-day, and 364-day papers closing at 5.4896%, 5.8137%, 6.3%, and 6.5727%, and the 10-year bond at 8.1337%.
The Bureau of the Treasury will auction P55 billion in short-term bills and P30 billion in reissued 10-year bonds this week amid inflation and geopolitical risks.
Bangko Sentral ng Pilipinas forecasts October inflation at 7.1%-8.1%, potentially surpassing the previous 7.2% peak and remaining well above the 3% target.

Debt sales scheduled amid inflation pressure

As reported by BusinessWorld Online, yields on the government securities due for auction this week could track higher after week-on-week increases in the secondary market and expectations that October inflation accelerated. Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said short-term bill yields could rise for an 11th straight auction, with T-bill rates near three-year highs and the reissued bond potentially fetching its highest average rate in more than eight years.

On Tuesday, the Bureau of the Treasury will offer P10 billion in 35-day cash management bills, alongside P20 billion in 91-day Treasury bills, P15 billion in 182-day papers and P10 billion in 364-day debt. On Wednesday, the government is looking to raise P30 billion from reissued 10-year Treasury bonds with a remaining life of six years and nine months.

Ricafort said higher Brent crude prices could add to inflation pressures, alongside risks tied to possible U.S.-Iran military escalation after the U.S. midterm elections mentioned in the report. At the secondary market on Friday, yields on the 35-day, 91-day, 182-day and 364-day papers rose to 5.4896%, 5.8137%, 6.3% and 6.5727%, respectively, while the 10-year bond yield ended at 8.1337%.

Inflation outlook and funding targets

The Bangko Sentral ng Pilipinas said on Friday that October inflation is seen settling between 7.1% and 8.1%. If realized, inflation could exceed the 7.2% peak recorded in September and April and remain above the BSP's 3% target for an eighth straight month.

The Philippine Statistics Authority is due to release the October inflation report on Thursday, Nov. 5. At the upper end of the central bank's forecast, inflation would accelerate sharply from the 1.7% pace in October last year, while the low end of the range would still mark a slowdown from September and the weakest print since August's 6.1%.

Last week, the Treasury raised P47.68 billion from cash management bills and Treasury bills, below its P55 billion plan, despite P83.84 billion in tenders. For November, the government is aiming to raise P283 billion from the domestic market, including P168 billion through T-bills and P115 billion via T-bonds, as it continues to fund a budget deficit capped at P1.659 trillion, or 5.4% of gross domestic product, this year.

Our earlier article on planned reforms to peso-denominated Philippine government bonds explained how a new pricing convention and the expected inclusion in J.P. Morgan’s Government Bond Index-Emerging Markets could improve comparability, liquidity, and foreign participation. It also noted that any benefits to borrowing costs and capital inflows are not automatic and still hinge on global rate conditions and confidence in fiscal credibility. The piece added that deeper capital-market development requires broader structural reforms so market modernization translates into productive investment rather than just more active trading of sovereign debt.

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