Philippine Treasury partially awards bond offer as weak demand pushes yields higher

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Highlights

Philippine Bureau of the Treasury partially awards only P15.543 billion of reissued 10-year bonds versus P30-billion target as tenders reach P21.94 billion.
The awarded average yield rises to 8.239%, up 88.7 basis points from September's 7.352% and 161.4 basis points above the 6.625% coupon rate.
Weak demand driven by inflation risks, Middle East tensions, and Bangko Sentral ng Pilipinas' 50-basis-point rate hike, with October inflation expected at 7.6%.

Auction results and pricing pressure

As reported by BusinessWorld Online, the Bureau of the Treasury borrows only P15.543 billion from its reissued 10-year Treasury bonds on Wednesday, below its P30-billion target after tenders reach just P21.94 billion. The partial award leaves the outstanding volume for the bond series at P305.7 billion, according to the Treasury bureau's statement after the auction.

The reissued papers, which have a remaining life of six years and nine months, are awarded at an average rate of 8.239%, with accepted yields ranging from 8.1% to 8.3%. The average rate is 88.7 basis points higher than the 7.352% fetched at the series' last award on Sept. 8, and 161.4 basis points above the issue's 6.625% coupon rate.

The award is also above secondary-market benchmarks tracked by the Treasury bureau using PHL Bloomberg Valuation Service Reference Rates data. It is 16.2 basis points higher than the 8.077% fetched for the same bond series and 14.6 basis points above the 8.093% quoted for seven-year debt before Wednesday's auction.

A trader says the partial award is due to low demand, adding that limited support for the same bonds in the secondary market reflects investor caution. The trader also says the average yield for the reissuance is still within market expectations.

Inflation and geopolitical risks weigh on demand

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort says yields rise as weak risk appetite keeps investors hesitant about longer tenors, with the unresolved Middle East crisis continuing to cloud market sentiment. He says the conflict's effect on inflation in the Philippines and abroad, along with possible disruptions from strong El Niño conditions and second-round price pressures such as wage and fare hikes, could lead to further monetary tightening.

Ricafort adds that expectations Philippine headline inflation peaks again last month also help push yields higher. Oil prices rise on Wednesday in a volatile session as investors await Washington's next move in the war with Iran, while Brent and U.S. West Texas Intermediate crude both recover from earlier declines.

At its Oct. 22 meeting, the Bangko Sentral ng Pilipinas takes a more aggressive stance and raises benchmark interest rates by 50 basis points to contain broadening price pressures. The central bank also leaves the door open to further tightening, while projecting inflation to average 6.1% this year and 6% in 2027.

The Monetary Board holds its last meeting for the year on Dec. 17. A BusinessWorld poll of 22 analysts and economists shows median expectations for October headline inflation at 7.6%, above the previous 2026 peaks of 7.2% in April and September, while still within the central bank's 7.1% to 8.1% forecast range for the month.

The Philippine Statistics Authority releases October inflation data on Thursday, Nov. 5. For November, the Bureau of the Treasury targets to raise P283 billion from the domestic market, including P168 billion through Treasury bills and P115 billion via Treasury bonds, as the government funds a budget deficit capped at P1.659 trillion, or 5.4% of gross domestic product, this year.

In our earlier article on planned Philippine sovereign bond reforms and index inclusion, we explained how a new pricing convention for peso government bonds and a targeted entry into J.P. Morgan’s emerging-market government bond index could improve comparability, liquidity, and foreign participation. We also noted that better trading mechanics alone won’t automatically deliver lower borrowing costs or stronger real-economy investment, as outcomes still hinge on global rates, fiscal credibility, and broader capital-market and governance reforms.

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